Recently, Bitwise Asset Management’s Chief Investment Officer made a bold prediction regarding the potential impact of Ethereum Exchange-Traded Products (ETPs) on the price of ether (ETH). He suggested that ETH prices could soar to new all-time highs surpassing $5,000 by the end of the year. Drawing a parallel between ETP flows and their impact on Bitcoin, the CIO stated that ETPs could potentially have a greater effect on Ethereum due to various reasons.
The anticipated price surge for Ethereum is said to depend heavily on fundamental supply and demand principles. While the launch of ETPs does not directly alter the underlying fundamentals of ETH, it introduces a new source of demand into the market. This phenomenon was observed with Bitcoin following the introduction of spot Bitcoin ETFs earlier in the year, contributing to a significant rise in the price of the leading cryptocurrency.
Comparison with Bitcoin
Despite similarities in the introduction of ETPs for Bitcoin and Ethereum, there are certain factors that suggest Ethereum could potentially experience even higher gains from ETP inflows. One key factor is the difference in inflation rates between the two assets. While Bitcoin has an inflation rate of 1.7%, ETH’s inflation rate has been at 0% over the past year. This is largely due to the consumption of ETH by various applications on the Ethereum network, offsetting the daily creation of new ETH and creating a more balanced supply-demand dynamic.
Another advantage that Ethereum holds over Bitcoin is its “proof of stake” consensus mechanism. Unlike Bitcoin miners who often need to sell their newly mined BTC to cover operational costs, Ethereum stakers do not face high direct costs and are not compelled to sell their rewards immediately. This reduces the daily forced selling pressure on ETH, contributing to a more favorable supply-demand balance for Ethereum.
Locked Supply
Currently, a significant portion of the total ETH supply is either staked or locked in decentralized finance smart contracts, making it effectively off the market. Around 28% of all ETH is staked and locked in contracts for a set period while an additional 13% is locked in DeFi contracts. This means that approximately 40% of ETH is not readily available for sale, potentially amplifying the impact of new demand from ETP inflows on the price of Ethereum.
The introduction of Ethereum Exchange-Traded Products could have a substantial impact on the price of ether, potentially driving it to new record highs by the end of the year. With a favorable supply-demand dynamic, reduced selling pressure, and a significant portion of ETH already locked up, Ethereum seems well-positioned to benefit from the influx of new demand from ETPs. It remains to be seen how the market will react in the immediate aftermath of the ETP launch, but the long-term outlook for ETH appears to be positive.
