Bitwise predicts Ethereum ETFs will trigger 50% surge to new all-time high over $5k

Bitwise CIO Matt Hougan predicts that the upcoming spot Ethereum ETFs will drive the digital asset’s value to new all-time highs, surpassing $5,000.

In a June 16 note to investors, Hougan wrote:

“By year-end, I’m confident the new highs will be in. And if flows are stronger than many market commentators expect, the price could be much higher still.”

However, Hougan mentioned that ETH’s price might not rise immediately after the ETFs launch next week because “money may flow out of the $11 billion Grayscale Ethereum Trust (ETHE) after it converts to an ETP.”

Still, Hougan emphasized that spot ETFs usually generate new demand for commodities like ETH. He referenced the launch of similar products for Bitcoin, which led to a price increase of around 25% since January 11 and about 110% since October 2023, when the market began anticipating their approval.

Why ETH could reach a new high

Hougan outlined three structural reasons why the inflows into spot ETH ETFs will have a more significant impact than they did for BTC.

First, he claimed ETH’s short-term inflation rate is 0%, unlike Bitcoin’s 1.7% when its ETFs began trading. This means BTC needed “$16 billion of Bitcoin buying per year just to tread water.” With ETH, the situation differs as “people using Ethereum-based applications—everything from stablecoins to tokenized funds—consume ETH as well.”

Hougan highlighted the correlation between “the amount of ETH being consumed” and network activity, noting it presents “another lever of organic demand working in [ETF] investors’ favor.”

Furthermore, Hougan pointed out that Ethereum’s price does not have to deal with the threat of “miners’ selling” because its stakers do not need to sell before making profits. ETH stakers are investors who have locked up a certain amount of their coins to help the network operate smoothly.

He wrote:

“A key difference between Bitcoin mining and Ethereum staking is that staking does not have significant direct costs. As a result, Ethereum stakers are not forced to sell the ETH they produce. Even if Ethereum’s inflation rate rises above 0%, I do not expect significant selling pressure from stakers.”

Additionally, Hougan pointed out that approximately 40% of the Ethereum supply is locked in staking and smart contracts, making it unavailable for sale.

So, Hougan reiterated his prediction that ETH ETF assets under management could reach $15 billion within their first 18 months of trading and concluded that:

“ETH is currently trading at ~$3,400, just 29% below its all-time high. If the ETPs are as successful as I expect—and given the dynamics above—it’s hard to imagine ETH not challenging its old record.”

[Editor’s Note:

Data from ultrasound money shows that Ethereum’s inflation rate is now above zero percentage, coming in at 0.466% over the past 24 hours and 0.595% over the past 30 days. However, since The Merge it has recorded a negative 0.136% inflation due to ETH being burned through transaction fees, making it deflationary over 1 year and 306 days. 

Hougan’s argument regarding Ethereum’s inflation ultimately relies on the network’s consumption. High transaction numbers lead to high amounts of ETH burned and, thus, lower inflation. Yet, the surge in layer-2 usage due to lower fees has resulted in fewer mainnet transactions over the past few months, thus pushing Ethereum back into inflationary territory.]

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