Bitcoin ETF Debut: A Lesson for Ether ETF Speculators

2024-01-23, 07:30

The Bitcoin price maintained high momentum for 90 days before the approval of spot Bitcoin ETFs.

The price of bitcoin has been gradually decreasing after the launch of the ETFs.

Currently, the market expects the SEC to approve spot ETH ETFs in May.

Keywords: spot bitcoin ETF, BTC ETF, ETF approval, spot ETF approval, eth ETF approval, Ethereum ETF, price of ETH, bitcoin price, buy BTC, ETH price, BTC price, buy ETH, SEC approves spot bitcoin ETF

Introduction

After the SEC approved spot bitcoin ETFs on 10 January 2024 the price of bitcoin reached a new 21-month high of about $48,000 on the same day. Similarly, the value of Ether (ETH), the largest altcoin, rose in response to the market ETF approval frenzy.

On 10 January the Securities and Exchange Commission (SEC) approved 11 spot bitcoin ETF applications including those from Fidelity, Invesco, BlackRock , Ark Investments and VanEck.

Thus, soon after the ETF approvals prices of both bitcoin and ETH started rising. The purpose of this analysis is to uate the lessons Ether ETF speculators should learn from bitcoin price movement before and after the SEC’s approval of the spot crypto ETFs.

Bitcoin Implied Volatility Plummets Post SEC’S Spot ETF Approval

Before and after the SEC’s approval of 11 spot bitcoin ETF applications from Grayscale Bitcoin Trust , BlackRock, VanEck , ARK , Franklin and WisdomTree there were several notable developments in the crypto sector.

The key developments relate to fluctuations of major cryptocurrencies like bitcoin and ETH as well as significant changes in the options market and implied volatility. Also, the approval of several spot bitcoin ETFs has changed the focus of some crypto speculators.

Now, some investors look forward to the SEC’s consideration and approval of spot ETH ETFs. As we know, ETH is the second largest crypto asset on the market and the leading altcoin. Another notable development is that recently the SEC declared that both bitcoin and ETH are commodities which has increased the chance of spot ETH ETF approvals.

High Implied volatility: Importantly, while the bitcoin price was fluctuating within a range during the second week of January the implied volatility kept on increasing. In fact, it reached 96% a few days before the spot ETF approval. However, it has since dropped to around 52%.

In simple terms, implied volatility refers to the market’s expectation of price turbulence of an underlying asset, which positively affects the price of put and call options. A high implied volatility means that there is uncertainty in the market about the price of the asset.

The reason is that the increase in volatility often leads to high price swings of the investment asset, in this case bitcoin. That also indicates that the value of options would rise as it approaches its expiration.

The market has observed that towards a key event such as the spot bitcoin ETF application approvals traders normally buy options to establish long vega positions so they benefit from the increase in implied volatility. Nonetheless, they may expose themselves to the risk of post-event drop in volatility resulting in falling option prices. Such a scenario is the one that occurred in the bitcoin market after BTC ETF approvals.

Therefore, there has been a great lesson to the crypto community as it braces for similar events like the expected ETH ETF approvals. Already, we know that several asset management firms including Grayscale, BlackRock, Invesco, VanEck and Ark have applied for Ethereum ETF approvals. As such any ETH ETF approval may lead to implied volatility.

Notably, Samneet Chepa, a crypto analyst, has advised traders to behave differently should the SEC approve ETH ETFs. He said on x.com, “Something to remember with the ETH ETF story unfolding. Price action usually ramps up well before the big day, but volatility often spikes just as the event draws closer. By the time of the actual announcement, being net long vol might not be ideal.”

He added, “For the ETH ETF, considering a short vega position could be viable as we’ve been down this road with the BTC ETF, giving us a bit of insight into what might be coming up.”

Bitcoin Surged by 60% within 90 Days leading to the SEC ETF approval

Apart from the rise in implied volatility the price of bitcoin rallied by over 60% during a 90-day period before the SEC approved the BTC ETFs. Nonetheless, that bitcoin trending period was followed by a post ETF approval cool off which resulted in a significant fall in the price of bitcoin.

Interestingly, a few days before the ETF approvals put traders traded at premium to calls, a sign that they were seeking protection against a possible BTC price fall. Although the bitcoin price surged from $46,000 to $49,000 on 11 January, it retraced towards $46,000 when the trading of ETFs started.

With this, ETH traders should keep watching the asset’s price as they anticipate ETF approval. The earliest date for spot ETH approval is May, for VanEck’s ETF. It will be followed by that of BlackRock’s coming in August. Therefore, crypto traders should look for the best time to buy ETH as we move towards the expected ETF approval date.

Ether (ETH): The Next Contender for Spot ETF Approval

Earlier on, we discussed the possibility of the SEC approving Ethereum ETF. According to Wu Blockchain, Eric Balchunas, has predicted a 70% chance of the SEC to approve spot Ethereum ETFs. However, it is not yet clear whether or not the SEC may approve all the ETH ETF applications submitted to it.

Source: x.com

As per Wu Blockchain, the SEC is likely to approve ETH ETFs by May this year which may help to push the ETH price up between February and the approval date. However, due to the normal correlation between the price of ETH and that of bitcoin investors may also buy BTC during that period, depending on its momentum.

Considering the number of spot BTC ETFs the SEC recently approved there is a high chance that it will approve Ethereum ETFs. The fact that ETH has many institutional investors could entice the SEC to approve the ETFs.

Interesting to know Why Do People Choose Crypto ETFs?

Conclusion

After the approval of 11 spot bitcoin ETFs the market expects the SEC to approve ETH ETFs in May. However, ETH speculators should take several lessons from the events surrounding the approval of bitcoin ETFs to prevent loss of invested funds. Thus, they should note that the ETH price may ramp as we move towards the ETF approval date but cool off after their launch.

FAQs about Bitcoin ETFs

Should you invest in bitcoin ETF?

It is very convenient to invest in bitcoin ETFs since it eliminates the challenges of managing bitcoin directly. Also, that reduces the risks associated with handling and holding bitcoin such as hacking and other crypto attacks.
Has bitcoin ETF been approved?

The SEC approved 11 spot bitcoin ETFs on 11 January 2024. These ETFs are already listed on several stock exchanges like NYSE, Nasdaq, and Cboe Global markets.

Who is offering bitcoin ETFs?

Ark Investments, Fidelity, Invesco, VanEck, BlackRock, Bitwise, Fidelity, Franklin, Grayscale, Hashdex , Valkyrie, and WisdomTree are some of the asset management firms that are offering spot bitcoin ETFs. However, investors buy the spot bitcoin ETFs from stock exchanges such as NYSE, Nasdaq, and Cboe Global markets.

What is an ETF crypto?

An ETF crypto is an exchange traded fund that tracks the price of a specific cryptocurrency. For example a spot bitcoin ETF tracks the price of bitcoin. Investors buy ETF cryptos from stock exchanges.

Author: Mashell C., Gate.io Researcher

*This article represents only the views of the researcher and does not constitute any investment suggestions.

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