Ethereum’s price rally after the launch of spot ETFs might be short-lived, cautions analyst Benjamin Cowen. While the initial excitement surrounding these financial instruments could provide a temporary boost, long-term sustainability hinges on supply dynamics.
Supply Woes Threaten Post-Merge Gains
Cowen, founder of Into The Cryptoverse, highlights Ethereum’s rising supply as a potential price dampener. Ethereum’s transition to proof-of-stake (the Merge) in September 2022 introduced a deflationary mechanism, leading to a supply decrease of roughly 455,000 ETH by April 2024. However, the trend has reversed, with the supply increasing by around 150,000 ETH since then.
Cowen warns that if this upward trend continues at the current pace of 60,000 ETH per month, Ethereum’s supply could return to pre-Merge levels by December. This could potentially negate the deflationary benefits of the Merge and put downward pressure on the price.
Impact on Bitcoin Dominance
Cowen further suggests that a potential price dip for Ethereum in the next 3-6 months might not necessarily derail its long-term trajectory. He believes that in 1.5 years, Ethereum’s price is “likely to be higher” than its current level of around $3,500.
Interestingly, Cowen also links Ethereum’s price action to its dominance relative to Bitcoin (BTC). He suggests that if the supply concerns materialize and lead to a price dip for Ethereum, it could coincide with a period of “final capitulation” for the ETH/BTC ratio, potentially starting in September 2024. This timeframe aligns with the potential for the novelty of spot ETFs to wear off.
While Cowen raises concerns about rising supply, on-chain analyst Leon Waidmann presents a contrasting perspective. Waidmann argues that Ethereum is actually facing a “supply crisis,” citing a significant decrease in exchange balances and a large portion of ETH locked in smart contracts.
This, according to Waidmann, signifies a tighter supply than many investors realize.
Spot ETF Launch Imminent
Five spot Ethereum ETFs are poised to begin trading on the Chicago Board Options Exchange (CBOE) on July 23rd, pending regulatory approval. This development follows the US Securities and Exchange Commission’s (SEC) green light for spot Ether ETF listings in May 2024. The arrival of these ETFs is expected to create new avenues for investors to gain exposure to Ethereum without the complexities of directly holding the cryptocurrency.
The interplay between rising supply, potential ETF hype, and a perceived supply squeeze will likely determine Ethereum’s price path in the coming months. While short-term volatility is a possibility, long-term investors will be closely monitoring these factors to assess Ethereum’s overall health and growth potential.
Disclaimer:Ā The information in this article is for general purposes only and does not constitute financial advice. The authorās views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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