In a recent article on the social media platform X (formerly Twitter), crypto VC Andrew Kang shared his insights on the potential impact of spot Ethereum (ETH) ETFs, which are expected to launch in the U.S. soon.
Andrew Kang is a prominent figure in the cryptocurrency industry, recognized for his role as the co-founder and partner of Mechanism Capital, a firm that focuses on cryptocurrency investments, particularly in decentralized finance (DeFi). Founded in September 2020, Mechanism Capital invests in various aspects of the crypto market including prop trading, mining, ventures, and secondary markets.
Kang has previously worked in portfolio management and venture capital at Digital Capital Management, giving him a strong background in financial and investment strategies within the crypto space.
Kang is known for his active participation in analyzing and commenting on DeFi projects, often sharing his insights on platforms like Twitter. He has made angel investments in several crypto projects such as Saddle Finance, Blast, and Perpetual Protocol, and has led Mechanism Capital’s investments in notable projects like Nansen, Biconomy, Highstreet, and XDEFI
In his article on X, Kang compares the impact of the upcoming spot ETH ETFs to the previously launched spot Bitcoin (BTC) ETFs. He notes that spot Bitcoin ETFs opened the door for many new buyers, significantly impacting BTC’s market dynamics. Since the BlackRock ETF application for Bitcoin, BTC has increased significantly, outperforming ETH in recent returns.
He argues that the impact of spot ETH ETFs will likely be less dramatic unless Ethereum can significantly improve its economic fundamentals. He points out that while spot Bitcoin ETFs accumulated an impressive $50 billion in assets under management (AUM), the true net inflows, after accounting for pre-existing assets and market rotations, are closer to $5 billion. For Ethereum, Kang estimates that spot ETH ETFs might see much lower inflows, potentially around $0.5 billion to $1.5 billion within six months.
Kang points out that Ethereum, often pitched as a “tech asset” due to its applications in decentralized finance (DeFi) and NFTs, faces challenges in convincing traditional finance (TradFi) investors. He mentions that the current economic indicators for Ethereum, such as growth rates and fee generation, do not make a compelling case for significant investment from institutional players. He suggests that ETH’s price might experience a modest increase before the spot ETH ETFs launch but expects it to range between $2,400 and $3,800 post-launch. In contrast, he says, if BTC sees substantial gains, it could drag ETH along, though ETH might not keep pace.
He also highlights that Ethereum’s unique attributes, such as staking and DeFi utilization, make it less attractive for conversion into spot ETF form compared to Bitcoin. He believes this could lead to lower initial flows into these ETFs. Despite these challenges, Kang remains cautiously optimistic about ETH’s long-term prospects, particularly if large financial players like BlackRock succeed in integrating blockchain technology more deeply into traditional financial systems.
Kang’s overall thesis is that while the launch of spot ETH ETFs in the U.S. will bring some new capital into Ethereum, the scale and impact will be considerably less than what was seen with spot Bitcoin ETFs. He believes that the true net buying will likely be lower, and the market has already priced in much of the expected demand. Hence, he anticipates a continued downtrend for the ETH/BTC ratio over the next year.
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