Ethereum Prices Expected to Recover and Outperform Bitcoin, Says Lumida Wealth CEO
Despite the strong performance of other cryptocurrencies like Solana (SOL) and Cardano (ADA), Ethereum (ETH) prices have been struggling to break the $2,500 mark. However, according to Ram Ahluwalia, the CEO of Lumida Wealth, there are indications that ETH prices may soon recover and even outperform Bitcoin.
ETHE Discount Closing
Ahluwalia points to the ETHE chart, which shows a steady decrease in the discount over the past few months. On December 22, there was a 4% gain, further reducing the discount. This suggests that institutional investors who previously bought the regulated ETHE product by Grayscale to gain exposure to ETH are now opting to buy ETH directly on the spot market instead of through derivatives.
The Cheapest-to-Deliver Contract Theory
According to Ahluwalia, this shift from ETHE to ETH spot can be explained by the “cheapest-to-deliver” contract theory. In derivatives markets, ETHE is seen as the cheapest way for institutional investors to gain exposure to ETH. However, as the ETHE discount closes, marginal flows are expected to go into ETH spot in order to capture staking yield.
Capital Flow and Staking Yield
Ahluwalia believes that institutions are unlikely to invest more funds into ETHE since significant gains have already been made. Instead, capital will flow into ETH via the spot market in order to earn staking yield. As a proof-of-stake project, users can stake ETH and earn a yield of around 4.3%. The more users choose to stake physical ETH, the lower the reward rate or yield becomes.
Potential Price Increase
As ETHE discounts close and institutions rotate funds into ETH via the spot market, there is a possibility of lifting prices. Looking at the daily chart, ETH buyers currently have the upper hand. If there is a comprehensive close above $2,400, it could potentially lift ETH to $2,500 and beyond in a buy trend continuation pattern.
Hot Take: Ethereum Poised for Recovery and Outperformance
Despite its recent struggles, Ethereum may be on the brink of a recovery and could even outperform Bitcoin in the future. The closing of the ETHE discount suggests that institutional investors are shifting their focus from derivatives to the ETH spot market. This shift is driven by the desire to capture staking yield and take advantage of the “cheapest-to-deliver” contract theory. As capital flows into ETH via the spot market, prices may increase, offering potential gains for investors. With positive price action and strong fundamentals, Ethereum is positioned for growth and success in the crypto market.
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