Bitcoin Still Favored Over Ether Amidst Rising ETH ETF Talks

Jonathan Stoker Feb 02, 2024, 09:20am 83 views

Bitcoin Still Favored Over Ether Amidst Rising ETH ETF Talks

Futures Pricing for Bitcoin and Ether Indicate Varied Expectations

Current futures pricing for bitcoin and ether suggest that traders anticipate ether to not perform as well as bitcoin in the coming months. The possibility of spot ETH exchange-traded funds (ETFs) launching this year is still uncertain, with the SEC yet to clarify if the cryptocurrency is a security or a commodity.

Market Makers and Ether Pricing

Market makers are predicted to counteract any potential increase in ether prices, thereby limiting an upward trend. A report by Standard Chartered last week projected that ether could potentially surge to $4000 in the subsequent three months, possibly even outperforming bitcoin if the U.S. SEC approves spot ETH ETFs in May.

ETH/BTC Forward Term Structure

Despite this, traders continue to favor bitcoin over ether, predicting continued downturn in the ether-bitcoin (ETH/BTC) ratio in the months to come, as stated by futures data. The ETH/BTC forward term structure, which is the ratio between ether futures prices and bitcoin futures prices over different maturities, has been on a downward trend according to data monitored by Blofin, a crypto asset management firm. Griffin Ardern, a volatility trader from Blofin, remarked that this downward slope is backward, meaning traders expect ether to underperform compared to bitcoin over time, demonstrating a greater bullish sentiment for bitcoin.

SEC Approval for Spot Bitcoin ETFs

The ETH/BTC ratio saw a 17% rise to 0.059 following the SEC's approval of spot bitcoin ETFs. This surge in performance is largely attributed to expectations that ether spot ETFs would receive approval soon, although this ratio has since fallen back to $0.053.

SEC's Classification of Ether

Futures traders express concern regarding the SEC's classification of ether as either a security or a commodity. The SEC's 2023 lawsuit against BinanceBinance and CoinbaseCoinbase for breaching securities law did not mention ether, leading to market speculation that the cryptocurrency will be classified as a commodity, a necessary prerequisite for spot ETF approval. On the other hand, JPMorgan has cast doubt on the SEC classifying ether as a commodity by May, and foresees a maximum 50% chance of the regulatory body approving spot ETH ETFs this year.

Ether Spot ETF Uncertainty

QCP Capital, a Singapore-based institutional digital assets trading firm, indicated in the "Options Vol-cast" note of January 29th that the uncertainty surrounding the ETH spot ETF could lead to greater volatility. This is primarily as its Proof-of-Stake could categorize it as a different asset class than bitcoin. There has also been a delay by the SEC in deciding on Blackrock and Fidelity's spot ETF applications, and the next pivotal date is May 23rd, noted Bloomberg analyst James Seyffart.

Expectations for Ether Performance

According to Ardern, the predicted weaker performance of ether is likely due to the fear of market makers' potential hedging activities. Continuous selling of ether higher strike call options has left market makers with a net long gamma exposure, meaning that they are predicted to sell the cryptocurrency as its price increases to balance their exposure back to neutral, which could inadvertently cap the upside.

Edited by Jonathan Stoker

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