Popular cryptocurrency analyst degentrading (@degentradingLSD) boldly predicted that Ethereum will hit $6,000 by September 2024. This prediction is in response to analysis by Mechanism Capital founder Andrew Kang, who expects Ethereum to underperform despite its imminent launch ETF funds to the American Ethereum spot market.

Andrew Kang’s analysis predicts a continuation of the downtrend for ETHBTC, with the ratio expected to range from 0.035 to 0.06 in the coming year. In his detailed thread on X, Kang expressed skepticism about Ethereum’s potential, even though the ETF launch is just days away.

Why Ethereum Could Hit $6,000 by September

However, Degentrading presented a counterargument in: thread on X. Degentrading begins by examining changes in CME’s open interest (OI) from pre-ETF days to the present, with a significant escalate of approximately $5 billion.

He explains: “Prior to the introduction of ETFs, cashing and holding positions on CME was very cumbersome due to margin requirements. Therefore, the upper limit of the underlying transactions is likely limited to this amount.” This observation suggests that the emergence of ETFs could significantly ease trading restrictions, potentially unlocking gigantic capital inflows.

He mitigates this, however, by discussing the challenges posed by the extinction of major brokers such as Genesis, which complicates spot borrowing as a hedge against long CME futures. According to degentrading: “If market makers cannot charge a bid/ask spread frequently, they are effectively locking in a loss. Therefore, the sheer number of CME-based transactions must be a minority. I would estimate the amount to be at most $1-2 billion.” That leaves an estimated $7 billion in potential impacts, a number he describes as “largely dependent on assumptions.”

Degentrading contrasts Ethereum’s position with Bitcoin’s, criticizing the sentiments of analysts such as Eric Balchunas. “Nothing in traditional finance is as exciting as technology. Bitcoin is branded as digital gold or millennial gold. The market capitalization of gold is approximately $15 trillion,” he notes. In contrast, Ethereum is viewed as a decentralized global settlement layer or world computer, and the US stock market is already valued at $50 trillion. In his opinion, this sets a much higher ceiling for Ethereum.

He further explains that in his conversations with specialists in conventional finance (tradfi), there is greater enthusiasm for ETH and even SOL compared to BTC. “People are much more excited about ETH or SOL for that matter. Therefore, I would set the inflow conversion rate at half the Bitcoin rate, which translates to approximately $3-4 billion in ETH,” degentrading claims.

One of the key points of the degentrading argument is Ethereum’s relative illiquidity compared to Bitcoin. He points out that although Ethereum is roughly one-third the size of Bitcoin, its liquidity is only about 10% of BTC. “This means that the inflow of $3-4 billion will significantly move ETH,” he emphasizes. Lack of liquidity can lead to significant price movements with relatively smaller capital inflows.

Regarding the current market position, degentrading highlights 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, people are setting expectations for $500 million in inflows within six months. This is the BEST technical configuration for ETH.”

An vital factor in de-gentrading analysis is the anticipated conversion of Grayscale’s Ethereum Trust (ETHE) into an ETF. He suggests that ETHE will likely face significantly less selling pressure compared to Grayscale Bitcoin Trust (GBTC) due to its smaller lender overhang. “ETHE will also likely face MUCH LESS selling pressure than GBTC due to much smaller lender overhang,” he notes.

The impact of cash and carry transactions

Andrew Kang responded to the de-gentrading analysis by highlighting the involvement of gigantic funds such as Millennium, which owns a $2 billion ETF. Kang points out that these types of funds engage in underlying transactions and are not long-only investment funds. “Millennium itself owns a $2 billion ETF. They are not investment funds that take only long-term positions. They do these types of underlying transactions. This is just one fund from the old filing,” Kang said.

Degentrading acknowledged this but emphasized the cost implications of maintaining a cash-and-carry position. He argued that the cost of holding such positions involves significant amounts, which affects the market maker’s profitability. “On this basis, the cost of holding the cash and carry trade would be net $300 million for Millennium and that amount would cost the market maker, which means the delta is covered by the naked futures delta,” degentrading countered.

At the time of publication, the price of ETH was $3,362.90.

Featured image created with DALL·E, chart from TradingView.com