Will Ethereum Skyrocket? Analyst Predicts $6,000 By September

Popular crypto asset analyst, degentrading (@degentradingLSD), has made a bold prediction that Ethereum will hit $6,000 by September 2024. The prediction comes in response to analysis by Mechanism Capital founder Andrew Kang, who expects Ethereum to underperform despite the impending launch of a US spot Ethereum ETF.

Andrew Kang’s analysis predicts that ETHBTC will continue to trend downwards, with the ratio expected to range between 0.035 and 0.06 over the next year. In an in-depth thread on X, Kang expressed skepticism about Ethereum’s potential, even with the ETF’s launch just days away.

Why Ethereum Could Hit $6,000 by September

However, Degen Trading is thread X. Degentrading begins by looking at the change in CME’s open interest (OI) from before the ETF was introduced to the present, which shows a significant increase of roughly $5 billion.

He explains that “before ETFs, it was very onerous to execute cash-and-carry on CME because of margin requirements, so basis trades are likely capped at that amount.”This insight suggests that the advent of ETFs could significantly ease trading constraints, unleashing massive capital inflows.

But he tempers this view by discussing the challenges posed by the disappearance of prime brokers like Genesis, which complicates spot borrowing as a hedge against CME futures longs. According to Degen Trading, “Unless market makers can frequently charge the bid/ask spread, they are effectively locked in a loss. Thus, CME basis trading volume must be a minority. I would put the figure at $1-2 billion at most.” This leaves an estimated $7 billion in potential inflows, which he describes as “highly dependent on assumptions.”

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Degentrading contrasts Ethereum’s position with Bitcoin, criticizing the opinions of analysts like Eric Balchunas. “Nothing is more exciting in traditional finance than technology. Bitcoin has been branded as digital gold, or millennial gold. Gold’s market cap is around $15 trillion,” he points out. In contrast, Ethereum is considered a decentralized global settlement layer, or world computer, and the US stock market is already worth $50 trillion. He argues that this sets Ethereum’s ceiling much higher.

Furthermore, he explains that in his discussions with traditional finance (tradfi) experts, he has seen increased enthusiasm for ETH and SOL compared to BTC: “People are actually very excited about ETH and SOL, so I think the inflow conversion rate will be half of Bitcoin, meaning the conversion to ETH will be around $3-4 billion,” degentrading claims.

One of the key points in degentrading’s argument is Ethereum’s relative low liquidity compared to Bitcoin. He emphasizes that while Ethereum is roughly one-third the size of Bitcoin, its liquidity is only around 10% of BTC’s. “This means that an inflow of $3-4 billion would move ETH significantly,” he emphasizes. This low liquidity can lead to significant price fluctuations even with a relatively small inflow of capital.

Regarding the market’s current positioning, degentrading points to the overall gloomy sentiment on Crypto Twitter (CT) and sees it as the best technical setup for Ethereum. He states, “With the launch of the ETH ETF on the horizon, there are people expecting $500 million inflows over 6 months. This is the best technical setup for ETH.”

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A key element in degentrading’s analysis is the expectation that Grayscale’s Ethereum Trust (ETHE) will convert into an ETF. He suggests that ETHE is likely to face much less selling pressure than Grayscale Bitcoin Trust (GBTC) due to the lower lender burden. “ETHE is likely to face much less selling pressure than GBTC due to the lower lender burden,” he notes.

The impact of cash-and-carry transactions

Andrew Kang responded to Degentrading’s analysis by highlighting the involvement of large funds like Millennium, which holds $2 billion in ETFs. Kang noted that such funds engage in basis trading and are not long-only investment funds. “Millennium alone holds $2 billion in ETFs. They are not long-only investment funds. They engage in these types of basis trading. This is just one fund that is on old paperwork,” Kang said.

Degen Trading acknowledged this, but emphasized the cost impact of holding a cash-and-carry position. He argued that the cost of holding such a position would result in a substantial loss, impacting the profitability of the market makers. “In that view, the cost of holding a cash-and-carry position would result in a loss of $300 million for Millennium and a cost to the market makers of that amount, with the difference being borne by the naked futures differential,” Degen Trading countered.

At the time of writing, ETH is trading at $3,362.90.

ETH Price, 1-week chart | Source: ETHUSD on TradingView.com

Featured image created by DALL·E and charts taken from TradingView.com

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