Last week witnessed an unusual fluctuation in the crypto market. Ethereum’s native token, ether, conspicuously outperformed bitcoin despite the broader market crash. While bitcoin fell by 10.5%, ether only recorded a loss of 8.3%, making a more than 2% gain in the widely tracked ether-bitcoin (ETH) ratio. Given that bitcoin, as the largest and most liquid cryptocurrency, often is the preferred asset during market slides, this development appears peculiar.
Historically, during times of market stress, investors often rally behind bitcoin. However, the recent spike in the ETH ratio marks a departure from this trend. A likely factor behind ether’s outperformance is growing optimism surrounding the potential launch of ether futures-based exchange-traded funds (ETFs) in the U.S., according to Noelle Acheson, author of the Crypto Is Macro Now newsletter.
Futures-based ETFs are instruments that track the price movement of an asset’s futures contracts. Though not as persuasive as a spot ETF, they offer a convenient way for retail and institutional investors to diversify their crypto exposure. The successful tracking of the largest cryptocurrency’s spot price by ProShares’ Bitcoin Strategy ETF since its inception in October 2021 attests to this potential. At present, at least 16 applications for ether futures ETFs or ether-bitcoin futures ETFs are awaiting regulatory approval in the U.S.
Simultaneously, however, one cannot discount the fact that ether’s unexpected performance might be a result of a lack of interest in this and other alternative cryptocurrencies. According to Markus Thielen, head of research and strategy at Matrixport, the crypto market has become somewhat stagnant, with multiple market makers stepping away and exchanges removing zero-fee trading. As a result, bigger players have shifted their focus primarily to bitcoin. The reduced liquidity in the market may have also deterred big traders from dabbling in altcoins.
Griffin Ardern, a volatility trader from Blofin, suggests that the hedging activity of ETH options market makers played a significant role in ether’s surprising outperformance. As he puts it, “ETH had solid positive gamma near the strike price of around $1,600, and its total gamma is still positive, which means that when the price falls, market makers are buyers rather than sellers.”
In conclusion, while optimism about new financial products may have given ether a modest boost, market liquidity concerns and strategic decisions by market makers seem to have simultaneously tilted the scales. As these factors continue to interact, their cumulative impact on the ETH/BTC ratio – and, by extension, the broader cryptocurrency market – remains to be seen.
Source: Coindesk
