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 by Mechanism Capital founder Andrew Kang, who expects ethereum to underperform despite the imminent launch of the ethereum US Spot ETF.
Andrew Kang's analysis projects a continued bearish trend for ETHBTC, with the ratio expected to range between 0.035 and 0.06 over the next year. In his detailed 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 x.com/degentradingLSD/status/1804911827031388213″ target=”_blank” rel=”nofollow”>thread at x. Degentrading begins by examining the change in CME 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 onerous to trade in cash and hold CME due to margin requirements. Therefore, the upper limit of basic operations is probably limited to that amount.” This idea suggests that the arrival of the ETF could significantly ease trading restrictions, potentially unlocking a large influx of capital.
However, he softens this by discussing the challenges posed by the demise of major brokers like Genesis, complicating spot borrowing as a hedge against long CME futures contracts. According to degentrading, “unless market makers can frequently collect a bid-ask spread, they are effectively locking in a loss. Therefore, the large number of CME base operations has to be in the minority. I would set the figure between 1,000 and 2,000 million dollars at most.” This leaves about $7 billion in potential inflows, a figure he describes as “highly dependent on assumptions.”
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Degentrading contrasts ethereum's position with that of bitcoin, criticizing the sentiments of analysts like Eric Balchunas. “Nothing in traditional finance is as exciting as technology. bitcoin has the mark of digital gold or millennial gold. The market capitalization of gold is approximately $15 trillion,” he notes. By contrast, ethereum is seen as a decentralized global settlement layer or world computer, with the US stock market already valued at $50 trillion. This, he maintains, sets a much higher ceiling for ethereum.
He further explains that in his conversations with traditional finance (tradfi) professionals, there is more enthusiasm for eth and even SOL compared to btc. “People are much more excited about eth or SOL. Therefore, I would set the input conversion rate at half that of bitcoin, which translates to around $3-4 billion in eth,” says degentrading.
One of the key points in the degentrading argument is the relative illiquidity of ethereum compared to bitcoin. He highlights that while ethereum is about a third the size of bitcoin, its liquidity is only about 10% of btc. “This means that an influx of between $3 and $4 billion will materially move eth,” he emphasizes. This illiquidity could lead to significant price movements with relatively minor capital inflows.
Addressing the current market positioning, degentrading notes the overall gloomy sentiment on crypto twitter (CT), deeming it the best technical setup for ethereum. He notes: “On the cusp of the eth ETF launch, there are people setting expectations of $500 million in inflows over six months. This is the BEST technical setup for eth.”
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An important factor in the degentrading analysis is the anticipated conversion of Grayscale's ethereum Trust (ETHE) into an ETF. It suggests that ETHE will likely face much less selling pressure compared to Grayscale bitcoin Trust (GBTC) due to less lender overhang. “ETHE is also likely to face MUCH LESS selling pressure than GBTC due to much smaller lender surplus,” he notes.
Impact of cash and carry operations
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 are dedicated to core operations and are not just long-term investment funds. “Millennium alone owns $2 billion of the ETF. They are not a long-term investment fund only. They perform these types of basic operations. That's just background from a previous presentation,” Kang said.
Degentrading acknowledged this, but emphasized the cost implications of maintaining a cash and carry position. He maintained that the cost of holding such positions generates significant amounts, which affects the profitability of the market maker. “With that in mind, the cost of maintaining a cash and carry would net Millennium $300 million and cost that amount to the market maker, which implies that the delta is supported by a naked delta in the futures,” degentrading replied.
At press time, eth was trading at $3,362.90.
Featured image created with DALL·E, chart from TradingView.com
