Daniel Cheung, the co-founder of Pangea Fund Management, said that Ethereum (ETH) price has not bottomed yet and could still drop another 40% in the next two months as investors flee the market amid an impending downturn out.
Cheung, who runs a crypto hedge fund startup he recently created with colleague Ryan Watkins after the first-round funding of $85 million, also pointed to rising inflation and rising earnings company’s decline as the factor that can derail the stock market and Ethereum.
Cheung’s comments come after the price of ETH has dropped by more than 70% since the beginning of 2022. At the time of writing, the second-largest cryptocurrency by the market is down more than 2.6% in the past 24 hours at $1,036.
Cheung said the crypto market has become increasingly correlated with stocks, especially tech stocks on Nasdaq, and expects this status quo to remain between now and August due to the lack of crypto catalysts.
He predicts corporate earnings will fall during a recession and a falling price/earnings ratio, meaning stocks will fall another 20% from here. The stock is down 30% from its recent peak, as investors slowly adjust earnings expectations after several years of superprofits.
“There will likely be more iterations of lower earnings revisions that follow over the coming months, especially given this is a market regime that very few investors have experienced. This will bring equities lower and crypto to follow with it. More downside to come… 40%+ downside for Ethereum.”
This severe drop will drag Ethereum down to around “$500 in the short term” from the June 29 price of $1,200.
Cheung also said that the share price is not cheap compared to its current value, despite an eight-fold forward price-earnings ratio for Coinbase, the publicly traded US cryptocurrency exchange, one of the big boys in the industry.
“When earnings still need to get cut – there is no floor on the multiple. You cannot confidently say things are cheap until earnings have fully reset. Otherwise, you are most likely just walking yourself into a trap,” he explained.
Cheung’s firm, Pangea Fund Management, adopted a “long-only strategy” when it was created just a few months ago after an $85 million funding round, but he believes “there is a massive short opportunity for Ethereum” at its current price.
Pangea Fund itself is not short, Cheung is still quite patient. But he expects inflation to worsen in July and August because of things like rising food prices and increased oil demand, all of which constitute a perfect storm for a “real capitulation in the crypto market.”
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