Popular crypto analyst degentrading (@degentradingLSD) has made a bold prediction that Ethereum will reach $6,000 by September 2024. This prediction comes in response to an analysis from Mechanism Capital founder Andrew Kang, who expects Ethereum to have lower performance, despite the imminent launch of spot Ethereum ETFs in the US.
Andrew Kang’s analysis projects a continued downtrend for ETHBTC, with the ratio expected to range between 0.035 and 0.06 over the next year. In his in-depth thread on X, Kang expressed skepticism about Ethereum’s potential despite the ETF’s launch being just days away.
Why Ethereum Could Hit $6,000 in September
Degentrading, however, presented a counterargument in a wire about X. Degenttrading begins by examining the change in CME’s open interest (OI) from the pre-ETF days to the present, noting a substantial increase of approximately $5 billion.
He explains: “Before the ETF, it was very costly to cash and carry on CME due to margin requirements. Consequently, the upper limit of basic trades is likely limited to this amount.” This insight suggests that the advent of the ETF could significantly ease trading restrictions, potentially unlocking a large inflow of capital.
However, he alleviates this situation by discussing the challenges posed by the demise of prime brokers like Genesis, which complicates spot lending as a hedge against long positions in CME futures. According to degentrading, “Unless market makers can frequently charge a bid/ask spread, they are effectively locking in a loss. Therefore, the large amount of CME-based trading must be a minority. I would set the value at a maximum of US$1-2 billion.” This leaves around $7 billion in potential inflows, a figure he describes as “highly dependent on assumptions.”
Related Reading
Degentrading contrasts Ethereum’s position with that of Bitcoin, criticizing the sentiments of analysts such as Eric Balchunas. “Nothing in traditional finance is as exciting as technology. Bitcoin has the hallmark of digital gold or millennial gold. The market capitalization of gold is approximately $15 trillion,” he notes. In contrast, Ethereum is seen as a decentralized global settlement layer or world computer, with the US stock market already valued at $50 billion. This, he argues, sets a much higher ceiling for Ethereum.
He further explains that in his discussions with traditional finance professionals (tradfi), there is more enthusiasm for ETH and even SOL compared to BTC. “People are much more excited about ETH or SOL in that sense. Therefore, I would set the entry conversion rate at half that of Bitcoin, which translates to about $3-4 billion worth of ETH,” says degentrading.
One of the key points in degenttrading’s argument is the relative lack of liquidity of Ethereum compared to Bitcoin. He highlights that although Ethereum is approximately a third the size of Bitcoin, its liquidity is only about 10% of that of BTC. “This means that an inflow of $3-4 billion will materially move ETH,” he emphasizes. This lack of liquidity could lead to significant price movements with relatively smaller capital inflows.
Addressing the current market positioning, degentrading points out the overall gloomy sentiment on Crypto Twitter (CT), seeing it as the best technical setup for Ethereum. He notes: “On the cusp of the ETH ETF launch, there are people setting expectations for inflows of $500 million in six months. This is the BEST technical setup for ETH.”
Related Reading
An important factor in the degentrading analysis is the anticipated conversion of Grayscale’s Ethereum Trust (ETHE) into an ETF. He suggests that ETHE will likely face much less selling pressure compared to the Grayscale Bitcoin Trust (GBTC) due to lower lender overhead. “ETHE will also likely face MUCH LESS. selling pressure than GBTC because of the much smaller creditor balance,” he notes.
Impact of cash and carry negotiations
Andrew Kang responded to degentrading’s analysis, highlighting the involvement of large funds like Millennium, which owns $2 billion of the ETF. Kang points out that such funds engage in basic trading and they are not just long-term investment funds. “Millennium alone owns $2 billion of the ETF. They are not a long-term investment fund. They do these types of basic trades. This is just background from an old record,” Kang said.
Degentrading acknowledged this, but emphasized the cost implications of maintaining a cash and carry position. He argued that the cost of maintaining such positions offsets significant amounts, which impacts the market maker’s profitability. “Based on this, the cost of maintaining a cash and carry would yield $300 million to Millennium and cost that amount to the market maker, implying that the delta is supported by a bare delta in futures,” retorted degentrading.
At press time, ETH traded at $3,362.90.
Featured image created with DALL·E, chart from TradingView.com