Traders are displaying a preference for Bitcoin over Ether despite the growing narrative around the potential launch of spot ETH ETFs. The forward term structure of the ether-bitcoin relationship indicates a downward slope, suggesting that traders anticipate weaker performance from ETH compared to BTC in the foreseeable future, according to one trader.
Current futures pricing for ether and bitcoin suggests a market expectation of underperformance by ether in the coming months. The uncertainty surrounding the approval of spot ETH ETFs adds complexity, as the SEC has not definitively categorized the cryptocurrency as a security or commodity. This ambiguity prompts market makers to potentially trade against rising ether prices, imposing a cap on potential gains.
A recent prediction by Standard Chartered suggested that ether could reach $4,000 in the next three months, potentially outpacing bitcoin if the U.S. SEC approves spot ETFs tied to ETH in May. Despite this optimistic outlook, traders continue to favor bitcoin over ether, projecting sustained weakness in the ether-bitcoin ratio in the coming months, as indicated by futures data.
The forward term structure of the ETH/BTC ratio, calculated by comparing prices for ether futures and bitcoin futures across different maturities, exhibits a downward slope. This suggests that traders anticipate ETH to perform less favorably than BTC over time. Griffin Ardern, a volatility trader from crypto asset management firm Blofin, explained, “This shows investors are relatively more bullish on BTC’s performance.”
The ETH/BTC ratio experienced a 17% surge to 0.059 shortly after the SEC approved spot bitcoin ETFs, driven by expectations of the regulator’s potential approval of ether spot ETFs. However, the ratio has since retreated to $0.053. Futures traders may be concerned about the SEC’s classification of ether as a security or commodity, with JPMorgan expressing skepticism about the likelihood of the SEC designating ether as a commodity by May and giving a 50% chance of spot ETH ETF approval in 2024.
Uncertainty surrounding the ETH spot ETF, particularly related to its Proof-of-Stake consensus mechanism potentially leading to a different asset classification from BTC, is contributing to the cautious stance. Market makers’ hedging activities, particularly the continuous selling of higher strike call options in the ether options market, have left them with a net long gamma exposure. This situation may lead to the inadvertent capping of upward price movements, as market makers sell cryptocurrency to hedge their exposure back to a neutral position.
