Analyst Who Nailed 2023 Reiterates $7,500 Ethereum Price Call

Approvals be damned — Ethereum’s price is poised to surge to $7,500 by the end of the year on spot ETF hype, according to Fundstrat’s Head of Crypto Strategy Sean Farrell.

“People will speculate, regardless of whether it's approved or not,” he said of a spot Ethereum ETF in a recent interview with Coinage. “So, I think we do get some strength out of Ethereum and Ethereum beta names.”

Over the past year, the price of Ethereum has increased 175% — touching $4,000 for the first time since 2021 last week, according to CoinMarketCap data. Meanwhile, the price of Bitcoin has increased 254% to $72,250 over the past year — pushed higher in recent months by the approval of spot Bitcoin ETFs and the billions of dollars of inflows that have followed.

As spot Bitcoin ETFs continue to crush Wall Street records, excitement has emerged over a similar vehicle for Ethereum that would allow investors to gain exposure to the coin in a traditional brokerage account. While they’ve been a blowout success for Bitcoin thus far, it’s unclear whether a class of similar products could be approved for Ethereum anytime soon.

In January, Bloomberg ETF Analyst Eric Balchunas penciled in a 70% chance of spot Ethereum ETFs being approved by May. On Monday, he lowered that likelihood down to 30%. Many market watchers have circled May 23 as a significant short-term date, when a decision deadline for the SEC will come on VanEck Funds' outstanding spot Ethereum ETF application.

The Securities and Exchange Commission’s decades-long denial of spot Bitcoin ETFs has lent some investors pause, in addition to Ethereum’s less-than-clear regulatory status. SEC Chair Gary Gensler has stated several times that Bitcoin is not a security under federal law, yet he has sidestepped similar questions about Ethereum as ETF hopefuls await a response.

However, the SEC has “implicitly acknowledged” Ethreum’s commodity designation from the Commodity Futures Trading Commission, Farrell said, which oversees marketplaces like the Chicago Mercantile Exchange, where Ethereum futures trade. In October, the SEC approved nine Ethereum futures ETFs from Valkyrie Investments, VanEck, and Proshares, as well.

The SEC’s approval of several spot Bitcoin ETFs followed the agency’s loss to Grayscale Investments in court last summer. The asset manager successfully argued that the SEC’s denial of its application to convert its then closed-end fund, The Grayscale Bitcoin Trust (GBTC), into an ETF was “arbitrary and capricious.”

The U.S. Court of Appeals for the D.C. Circuit scrutinized the SEC’s logic, taking issue with the regulator’s reasoning for approving Bitcoin futures ETFs and not spot Bitcoin ETFs. Previously, the SEC had argued that fraud and manipulation in Bitcoin’s spot market would not necessarily be reflected in Bitcoin futures markets, making the two markets distinct.

“If you look from a legal perspective ... it does seem like they should be approved,” Farrell said, pointing to Ethereum futures ETFs that already trade in the U.S. “But it could be a case where Gary and his posse  ... just find a reason [for denials], whether it be activity in DeFi, or what have you.”

SEC Commissioner Hester Peirce had previously told Coinage it was her hope that it would not take the agency losing another battle in court in order to see Ethereum ETFs approved. The agency hopefully learned a necessary lesson in “arbitrary” delays, she said. But that’s increasingly looking wishful. If it comes down to it, a legal battle could eventually compel the SEC to approve spot Ethereum ETFs, Farrell said. 

Before spot Bitcoin ETFs were approved, shares of GBTC traded at a discount relative to the fund’s Bitcoin holdings. Because of its structure as a closed-end fund, there was no mechanism for GBTC’s shares to be redeemed. That prevented GBTC’s and Bitcoin’s price from being aligned as GBTC shares traded hands, producing a discount of up to 49% in 2022.

Since converting to an ETF, however, GBTC’s discount has been erased. And in the runup to January’s approvals, the discount slimmed significantly — something that Farrell said should similarly happen to the discount for The Grayscale Ethereum Trust (ETHE).

Over the past year, ETHE’s discount has slimmed from as wide as 48% last March to 11% today, according to data from Ycharts. Still, the ETHE’s discount has fluctuated at times, tightening to as little as 8% in late December and widening as far as 17% in late January.

“We [will] probably see the ETH discount to NAV compress the same way we saw for GBTC,” Farrell said. “So, that's obviously a great place to be.”