Within the crypto industry, expectations are building that Ethereum (ETH -0.61%) could be the next cryptocurrency after Bitcoin (BTC -2.24%) to get a new spot exchange-traded fund (ETF). Wall Street investment firms have already filed applications with the Securities and Exchange Commission (SEC), and final approval could come as soon as May 23.
As might be expected, the possibility of a spot Ethereum ETF has market participants absolutely giddy. Standard Chartered Bank, for example, is now predicting that Ethereum could soar as much as 70% during the next several months. If so, that means that Ethereum could hit $4,000 by the start of the summer. But just how realistic is that assumption?
Bitcoin price history
To answer that question, all you have to do is look at the recent price history of Bitcoin. From the time of the BlackRock spot Bitcoin ETF application back in June to the official approval of the spot Bitcoin ETF on Jan. 10, the price of Bitcoin soared by 85%. So I can understand why some investors are now predicting that Ethereum could soar as well. The logic is certainly enticing: If Bitcoin went up by 85%, why can't Ethereum go up by 70%?
However, that seems to be glossing over a few key facts. For one, spot Bitcoin ETF approval did not bring any big price gains. It was a classic "buy the rumor, sell the news" event. From Jan. 11 (when the ETFs began trading), the price of Bitcoin has declined about 8%. Nobody wants to admit this, but the Bitcoin ETFs have been disappointing in this regard. Wall Street gave us Bitcoin ETFs, and now the price of Bitcoin is stuck at about $43,000.
And, secondly, Ethereum already received a price boost in January related to the Bitcoin ETFs. Ahead of Bitcoin ETF approval, the price of Ethereum briefly spiked to $2,500, based on the expectation that Ethereum would be the next major cryptocurrency to get an ETF. And now, nearly a month later, the price is back down to about $2,300. So any impact from ETF approval seems to be ephemeral at best.
Investor demand
And then there's the question of investor demand. Yes, Ethereum is the world's second-largest cryptocurrency, but it has always played second fiddle to Bitcoin. And that means there has always been less excitement for new Ethereum investment products than new Bitcoin investment products. New futures-based Ethereum ETFs, for example, met with little investor appetite when they debuted back in October.
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For both retail and institutional investors, Bitcoin is viewed as a store of value, a hedge against inflation, and a potential safe haven asset during times of economic uncertainty. In contrast, Ethereum has never been talked about as digital gold in the same way as Bitcoin. And it is not typically viewed as a hedge against inflation. So Ethereum is, all things being equal, much less valuable to investors from a portfolio optimization perspective.
The Bitcoin halving
Finally, keep in mind that another important event is showing up on the crypto calendar in just a few months: the Bitcoin halving, when the reward for mining new coin is cut in half. This eagerly anticipated event, which occurs only once every four years, is slated to occur on April 22. This date is a full month before the spot Ethereum ETF approval is scheduled to take place.
Past Bitcoin halvings have led to spectacular price rallies, and that leads me to think that the Bitcoin halving in April is going to be all anyone cares about very soon. The financial media will be filled with stories about the Bitcoin halving, and investors will be eagerly cranking out updated valuations for Bitcoin. In comparison, news about the Ethereum ETF will seem like a footnote. Any gains for Ethereum will likely be attributed to the Bitcoin halving, and not ETF approval.
Market expectations
So keep your expectations about a spot Ethereum ETF in check. Yes, Ethereum may see an uptick in value this year, but a $4,000 price target seems very aggressive right now. Remember -- the all-time-high for Ethereum is $4,891. And that was during the very peak of the last crypto bull market rally. Even The Merge, which was widely viewed as the greatest event in the history of Ethereum, never brought the token anywhere close to $4,000.
As Warren Buffett once famously remarked, "Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future." Wall Street investment firms make forecasts because they have products to sell. But they are not necessarily right. And even if they are right directionally, they may not be right on timing.
We've already seen this with the aggressive forecasts Wall Street investment firms made about the new Bitcoin ETFs. Wasn't Bitcoin supposed to be heading to $100,000 by now? As a result, you should only invest in Ethereum if you think it is currently undervalued, not because you are forecasting a huge price rally between now and the start of summer.
