Bitwise CIO Expects Ethereum to Reach $5,000 Post ETF Launch: How Likely Is This?

Key Takeaways

• Ethereum ETPs are expected to push ETH above $5,000.
• $15 billion in new ETP assets anticipated in 18 months.
• ETH price needs to break $3,500 resistance to turn bullish

Matt Hougan, Chief Investment Officer at Bitwise, predicts that Ethereum (ETH) could reach new highs following the launch of a spot Ethereum exchange-traded fund (ETF). He anticipates significant capital inflow into Ethereum, similar to what happened with Bitcoin ETFs, which could drive ETH’s price up to $5,000.

Ethereum’s price has underperformed in contrast to Bitcoin and several other altcoins. It barely reached $4,000 in mid-March, while Bitcoin made a new all-time high, as did Stacks (STX) and Binance coin (BNB) later in June. 

With these things in mind, what does Matt Hougan base his prediction on, and how likely is it? 

Hougan’s View 

Supply and Demand 

Hougan bases his projection on the economic principle of supply and demand. He explains  that the ETH ETFs will expose ETH to a new class of investors, or in other words, to new demand sources. Bitcoin saw a 25% rise since the launch of Bitcoin ETFs, and Hougan believes Ethereum could experience a similar, if not greater, impact.

He expects Ethereum ETFs to attract over $15 billion in new assets within the first 18 months, potentially pushing ETH above its current trading price of around $3,400 to challenge and surpass $5,000.

ETH’s Lower Short-Term Inflation Rate

Ethereum’s inflation rate is 0%, compared to Bitcoin’s 1.7% during its ETP launch. This lack of new supply and high demand could drive up ETH prices. Additionally, increased activity on the Ethereum network leads to higher ETH consumption.

This bullish outlook includes Ethereum’s lower short-term inflation rate, the non-compulsory selling behavior of ETH stakers, and the substantial portion of ETH being staked or locked in smart contracts.

Staking vs. Mining

ETH stakers, unlike BTC miners, do not need to sell their rewards to cover costs, reducing selling pressure. Ethereum uses a proof-of-stake system where stakers earn rewards without high costs, unlike Bitcoin’s energy-intensive mining process. However, it’s worth noting that none of the ETH ETF applications have staking included. 

Locked ETH Reduces Market Supply

About 28% of ETH is staked and unavailable for sale, with another 13% locked in decentralized finance (DeFi) contracts. This means roughly 40% of all ETH is off the market, further limiting supply and potentially driving prices higher.

Overall Market Implications

Hougan expects the new Ethereum ETPs to gather $15 billion in assets within 18 months, potentially pushing ETH to challenge its previous all-time high of around $3,400. Given the current dynamics and expected demand, ETH will likely exceed its old record.

ETH Price Analysis 

On May 17, Ethereum’s price broke free from a descending trendline, skyrocketing to nearly $4,000 by May 27. However, this bullish momentum was short-lived, as the price subsequently plummeted to a low of $2,830 on July 5.

The May 27 high hints at a potential double-top formation, suggesting that the following decline could trigger a more extensive corrective pattern. Alternatively, this surge might represent the second sub-wave of a three-wave correction, with the decline to July 5 marking its completion.

The key to determining the trend lies in the $3,500 area. If Ethereum surpasses this level and achieves a higher high, it would confirm a five-wave pattern from July 5, suggesting the beginning of a larger uptrend.

Conversely, if Ethereum faces rejection and falls below $3,000, it could indicate that it remains in its corrective phase, potentially targeting prices lower than $2,800.

If the bullish scenario is confirmed, with ETH rising to $3,600 and making a higher low above $3,000 on the retracement, it would strongly suggest a potential move towards $5,000.