Bitcoin ETF Launch: Insights for Prospective Ether ETF Investors

• Implications of SEC Approval of BTC ETFs on Ether Traders
• Introduction of Spot Bitcoin ETFs in the U.S.
• Significance of Implied Volatility
• The Bitcoin Market Scenario
• Impact on Options Pricing
• Upcoming Ether ETFs

Implications of SEC Approval of BTC ETFs on Ether Traders

Implied volatility of Bitcoin$42,260 -0.64% has drastically reduced after the approval of spot Exchange-Traded Funds (ETFs) by the Securities and Exchange Commission (SEC). This development has enormous implications for those trading in volatility as the spotlight now shifts towards optimism on Ether ETFs. Those interested in how Ether may behave before and after the anticipated ETF launch this year could gain insights from tracking how options are priced.

Introduction of Spot Bitcoin ETFs in the U.S.

About a dozen spot Bitcoin ETFs, which are investment assets in the actual token, started trading in the U.S on a Thursday. These eagerly awaited investment commodities only came into operation after the SEC granted approval on a Wednesday. Several noteworthy events occurred in the weeks leading up to their rollout, especially those related to implied volatility and the options market. This development is significant for speculators viewing Ether as the next likely recipient of spot ETF approval.

Significance of Implied Volatility

Implied volatility signifies investors' anticipations of price turbulence and positively affects the prices of both call and put options. While a call enables buyers to gain from or hedge against price rallies, a put offers protection against price slides.

In light of a binary event such as a stock's earnings date or the SEC's judgement on spot ETF applications, traders tend to purchase options to establish a long vega position that benefits from increases in implied volatility. This strategy, however, leaves traders vulnerable to a potential post-event volatility crash and the resulting slide in options prices.

The Bitcoin Market Scenario

What happened in the Bitcoin market is a lesson for Ether traders. It shows that maintaining a long volatility exposure on the day of the ETF announcement could be risky. This advice comes from Samneet Chepal, a crypto quant researcher. For the ETH ETF, considering a short vega (vol) position could be viable as we've been down this road with the BTC ETF, giving us some insight into what might be coming up, Chepal added.

Impact on Options Pricing

The Bitcoin price began to rally on ETF optimism in early October. The annualized seven-day implied volatility surged this month, reaching 96% prior to the SEC's approval. However, it has since plummeted to 52%.

Despite Bitcoin rallying over 60% in the three months leading up to the ETF launch, the consensus view dismissed the possibility of a sell-the-fact pullback after the launch on January 10. However, options signaled a post-approval cooling period. Bitcoin puts began trading at a premium to calls, indicating sophisticated market players were seeking protection against price drops.

Although Bitcoin rose from $46,000 to over $49,000 after spot ETFs started trading on a Thursday, the surge was brief. Prices have since fallen to nearly $46,000. Therefore, traders might want to keep an eye on how Ether options are priced as they speculate on the potential Ether spot ETF launch.

Upcoming Ether ETFs

Several firms, including BlackRock, have lodged applications for spot Ether ETFs as of November 2023. The earliest deadline for approval is in May for VanEck's ETF, followed by BlackRock's in August.

Edited by Jonathan Stoker