ETH ETF Launch Expected to Result in a Trading Price of $2,400 to $3,000
BTC ETF opened the door for many new buyers to include Bitcoin in their investment portfolios. The impact of an ETH ETF, however, is not as clear. When Blackrock submitted its ETF application, the price of Bitcoin was $25,000, and I was very bullish on Bitcoin at that time. The return on investment for Bitcoin has now reached 2.6 times, while the return on investment for ETH is 2.1 times. From the bottom of the cycle, the return on investment for BTC is 4.0 times, and the return on investment for ETH is also 4.0 times. So, how much upside can an ETH ETF bring? I don’t think it will be significant unless Ethereum develops a convincing way to improve its economic efficiency.
In terms of flow analysis, the BTC ETF has accumulated a total of $50 billion in assets under management, which is an astonishing figure. However, if we break down the net inflows since the launch of the BTC ETF, excluding the existing GBTC assets under management and rotation, the net inflows amount to $14.5 billion. However, this is not actual fund inflow as there are many delta-neutral fund flows to consider, such as basis trades (selling futures, buying spot ETF) and spot rotation. Based on CME data and analysis of ETF holders, I estimate that approximately $4.5 billion of net inflows can be attributed to basis trades. ETF experts suggest that large holders such as BlockOne have also converted a significant amount of spot BTC to ETF, roughly estimated at $5 billion. Deducting these fund flows, we can calculate the true net inflow for the BTC ETF as $5 billion.
From here, we can infer Ethereum in a simple way. @EricBalchunas estimates that the flow for Ethereum may be 10% of BTC. This would make the true net purchase flow within 6 months $500 million, while the reported net flow is $1.5 billion. Although Balchunas has biases in approval odds, I believe his lack of interest/pessimistic attitude towards ETH ETF is worth considering and reflects broader traditional financial interest.
Personally, my benchmark is 15%. Starting from the true net value of $5 billion for BTC, adjusted based on ETH’s market cap (33% of BTC) and a factor of 0.5, we arrive at a true net purchase of $840 million and a reported net value of $2.52 billion. There are reasonable arguments that ETHE has lower turnover than GBTC, so in an optimistic scenario, I estimate the true net purchase volume to be $1.5 billion and the reported net purchase volume to be $4.5 billion. This is approximately 30% of BTC flow.
In any case, the true net purchase amount is much lower than the front-end derivative flow of the ETF ($2.8 billion), not to mention the spot front-end flow. This means that the pricing of the ETF has already exceeded the actual price.
Due to different holder bases, BTC can benefit significantly more from ETF, so the access factor is adjusted for ETF flow. For example, BTC is a macro asset, more attractive to institutional investors with admission issues, such as macro funds, pension funds, endowments, sovereign wealth funds. ETH, on the other hand, is more like a tech asset, attractive to venture capital firms, crypto funds, tech experts, and retail investors who have fewer restrictions in dealing with cryptocurrencies. By comparing the CME OI-to-market cap ratio of ETH and BTC, a ratio of 50% can be derived.
Based on CME data, ETH’s OI was significantly lower than BTC’s before the ETF was launched. The OI accounted for about 0.30% of supply, while BTC accounted for 0.6% of supply. Initially, I thought this was a sign of “prematureness,” but it can also be said that it masked smart trading money’s lack of interest in ETH ETF. Traders on the street made a good trade on BTC, often with good information, so if they are not replicating the trade on ETH, there must be a good reason for it, which could indicate weak flow intelligence.
How did $5 billion bring BTC from $40,000 to $65,000?
The short answer is it didn’t. There were many other buyers in the spot market. Bitcoin is a truly validated asset on a global scale, an important portfolio asset, and has many structural accumulators, including Saylor, Tether, family offices, high-net-worth retail investors, etc. ETH also has some structural accumulators, but I believe their numbers are fewer than BTC.
Please remember that before the ETF, the amount of Bitcoin held was already $690 billion/1.2T+ BTC. Market participants/institutions hold a significant amount of spot cryptocurrencies. Coinbase has $193 billion in custody, with $100 billion coming from its institutional program. In 2021, Bitgo reported AUC of $60 billion, and Binance has custody of over $100 billion. Six months later, the ETF holds 4% of the total Bitcoin supply, which is significant but only a part of the demand equation.
Between MSTR and Tether, there were billions of additional buying pressure, but not only that, positions entering the ETF were not enough. There was a popular view at the time that ETF was a sell-the-news event/market top. Therefore, there were billions of short-term, medium-term, and long-term momentum sells that needed to be bought back (2x flow impact). Additionally, once ETF fund flows showed significant volatility, shorts also needed to cover. Open interest actually declined once the issuance phase started – it’s truly incredible.
The positioning for ETH ETF is quite different. ETH is priced 4 times lower than the low point, while BTC is priced 2.75 times higher than before the launch. Native crypto CEX OI has increased by $2.1 billion, bringing OI close to ATH levels. The market is (semi) efficient. Of course, many crypto natives saw the success of the Bitcoin ETF and have similar expectations for ETH, and have positioned accordingly.
I personally think the expectations of crypto natives are exaggerated and disconnected from the real preferences of allocators. People who are deep in the crypto space naturally have a relatively higher awareness and purchasing power for Ethereum. It’s a good pitch to position Ethereum as a “tech asset” – a global computer, Web3 app store, decentralized financial settlement layer, etc. It’s a good pitch, and I bought into it in the previous cycle, but it’s hard to sell when you see the actual numbers.
In the previous cycle, you could point to the growth rate of fees and argue that DeFi and NFTs will create more fees and cash flow, and present a convincing tech investment case from a tech stock perspective. But in this cycle, quantifying fees works against you. Most charts will show you flat or negative growth. Ethereum is a “cash machine,” but its 30-day annualized revenue is $1.5 billion, PS ratio is 300x, and the inflation-adjusted earnings/PE ratio is negative. How can analysts convince their dad’s family office or their macro fund boss about the reasonableness of this price?
I even expect that fugazi (delta-neutral) flow in the first few weeks will be relatively low for two reasons. First, approval is unexpected, and issuers didn’t have much time to convince large holders to convert their ETH into ETF form. The second reason is that the appeal for holders to convert is smaller as they would have to give up the gains from monitoring, farming, or using ETH as collateral for DeFi. But please note that the collateralization ratio is only 25.
Does this mean ETH will go to zero? Definitely not. It will be seen as valuable at a certain price, and it will also be somewhat dragged down when BTC rises in the future. Before the ETF, I expect the trading price for ETH to be $3,000 to $3,800. After the ETF, my expectation is $2,400 to $3,000. However, if BTC rises to $100,000 in Q4 2025/Q1 2026, this may drag down ETH from reaching ATH, but the ETHBTC trading pair will be lower. In the long run, there is hope for development, and you have to believe that Blackrock/Fink is doing a lot of work to put some financial tracks on the blockchain and tokenize more assets. How much value this will bring to ETH and the timing is currently uncertain.
I expect the ETHBTC trading pair to continue to decline and be between 0.035 and 0.06 next year. Although our sample size is small, we do see ETHBTC making lower highs in each cycle, so this is not surprising.
Tags:
Andrew Kang
CME
ETF
ETHE
Bitcoin
