Ether ETF Speculation Could Weigh on SOL, Wider Altcoin Market

Traders will not want to be short ETH while going through an ETF approval, one observer said.

AccessTimeIconMay 21, 2024 at 10:51 a.m. UTC
Updated May 21, 2024 at 6:21 p.m. UTC
  • Renewed hopes of an ether ETF debut in the U.S. is likely to see investors take money out of SOL and other alternative cryptocurrencies to invest into ETH.
  • Approval of a spot ether ETF is likely to broaden mainstream demand for crypto in the long run.

The crypto bull run that began last October has been characterized by Ethereum's ether (ETH) token underperforming rival layer 1 coins such as SOL, BNB and market leader bitcoin (BTC).

That, however, could change in the coming weeks, with ether overtaking the others on renewed hopes that a spot ether exchange-traded fund (ETF) will be approved in the U.S., opening the doors to a deluge of institutional money.

Late Monday, CoinDesk reported that the U.S. Securities and Exchange Commission (SEC) had asked firms looking to list and trade ether ETFs to update and refile documents necessary to secure regulatory approval. Around the same time, Bloomberg's ETF analysts raised the probability of the approval to 75% from 25%.

"ETH has been a de-facto funding token of this bull cycle, similar to the low-yielding Japanese yen in the currency market. With renewed hopes of a spot ETH ETF, traders would want to square off their ETH shorts vs SOL and other tokens," Ilan Solot, co-head of digital assets at Marex Solutions, said in an interview. "The unwinding of shorts will happen over time, ensuring ether outperformance in the near-term."

Though approval is not guaranteed , the signs of progress contrast starkly with the pessimism early this year that saw investors prefer BTC, SOL and others over the ether.

Nearly a dozen spot bitcoin ETFs began trading in the U.S. mid-January, putting the leading cryptocurrency at the forefront of mainstream institutional adoption. Furthermore, in the first quarter, investors increasingly flocked to cheaper and faster programmable blockchains like Solana, strengthening the bullish case for their native tokens.

That meant investors had an incentive to sell ether and buy SOL, BTC and other coins much as in forex markets investors sold the yen in favor of relatively high-yielding currencies like the dollar, euro and British pound. The SOL-ETH ratio has risen by 287% since October, and the ETH-BTC ratio has declined by 16.6%, according to TradingView.

That's no longer the case. The potential introduction of an ether ETF would put the cryptocurrency in a completely different category from SOL and other tokens. As such, the ETF speculation could see investors rotate money out of alternative cryptocurrencies and into ether. The token has rallied more than SOL, BTC and others in the past 24 hours.

"This ETH move might be just getting started," Solot said. "There could be waves of short covering as nobody would want to be short ETH going through an ETF approval."

Long-term bias unchanged

Derivatives market activity suggests investors are yet to price in ether leadership over the long term.

"The derivatives market believes that the current jump in ether is more likely caused by speculative sentiment. The front end of the ETH/BTC forward exchange rate term structure has seen some contango, but the back end remains in backwardation. This implies that investors have not changed their views on the long-term performance of ETH compared to BTC," said Griffin Ardern, head of options trading and research at crypto financial platform BloFin, in a Telegram chat.

That's consistent with analysts' view that ether ETFs will not hurt demand for bitcoin ETFs over the long run.

"I don't see spot ETH ETFs draining funds from BTC ETFs," Noelle Acheson, author of the popular Crypto Is Macro Now newsletter, told CoinDesk. "There may be some churn, but approval of the spot ETH ETFs is more likely to broaden the mainstream demand rather than channel it, with many investors seeing the ETH ETFs as a diversifier of the crypto portion of portfolios."

Acheson added that the jump in overall crypto interest should continue to boost both, especially as investors become familiar with the different narratives and likely use cases.

Edited by Sheldon Reback.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.