“IBIT is the fastest-growing ETF in the history of ETFs,” said Larry Fink, CEO of Blackrock (BLK), in a recent interview with Fox Business. The SEC approval of spot Bitcoin ETFs in January and subsequent performance have taken BTC and the broader crypto market to new heights.
First, Bitcoin itself hit a new “all-time high” as the price broke $70,000. The US-based CME futures contracts for Bitcoin surpassed the open interest of all other exchanges, including Binance, to become the largest trading venue for BTC derivatives. Finally, the futures basis reached over 25% on an annual basis, almost five times the risk-free rates in the US.
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Where does this leave us today?
Bitcoin has reached another important fundamental milestone that is exciting traders and investors for higher prices and that is the Bitcoin halving. The plan is for the Bitcoin block issuance rate to drop from 6.25 coins per block to 3.125 around April 20th (the perfect meme, of course).
Although it was a small sample, performance averaged around 200% from January to December in recent years when Bitcoin experienced a halving. This would mean a year-end price for BTC of around $91,500.
However, from a derivatives trading perspective, the predictability and certainty surrounding the halving is not comparable to the uncertainty of an SEC spot ETF decision and subsequent ETF launch. This means that traders are unlikely to be surprised by a completely familiar event. Given this understanding, the use of Bitcoin derivatives as a contrast to Ethereum tells us a story about the potential possibility of a post-halving rotation.
When we look at the April 26th options expiration (above) compared to the June 28th options expiration (below), we can clearly see the dynamics priced into both Bitcoin and Ethereum options. First, for April 26, Bitcoin options on the call wing are priced at a significant premium to the Ethereum call wing, while the Ethereum put wing price is priced at a premium to the BTC put wing .
Longer-term options for June 28 are overlaid almost identically, showing that a close relationship between BTC and ETH is a regular occurrence over the longer term.
What this tells me is that the current halving narrative is priced into short-term BTC options, while at the same time the lack of optimism towards Ethereum due to a possible “security” designation by the SEC and the likely rejection of a spot ETF in May are causing traders to to bid on Ethereum puts.
Something else I would like to highlight is the difference in CME-led positioning between BTC and ETH.
Looking at the BTC derivatives positioning chart above, we can see that CME futures (in green) really started in earnest in October on the back of enthusiasm for spot ETF approval. Today, the CME BTC Open Interest dwarfs every other exchange, including Binance.
If we look at Ethereum CME open interest, we see almost no increase, while Binance continues to significantly outperform CME open interest. This shows me that the US market has not started taking positions in Ethereum yet; And should we move to a spot ETF for Ethereum, be it in May or much later (after initial rejections), buyers have not yet overrun Ethereum.
So why should we even care about this opportunity to buy latecomer Ethereum?
While the market is rejoicing that the BTC halving is slowing down the rate of issuance of coins in circulation (clearly represented by 4/26 options), ETH supply has not only already stopped growing, but has been decreasing since September 2022 due to EIP active from -1559 burns.
Ethereum has also just successfully completed the Dencun upgrade as L2s and L3s begin to facilitate the growth of RWA, DeFi and NFT, along with the ability to build native “app chains” for high-throughput protocols that support activity in want to isolate themselves from their own environment.
No one knows exactly what the future holds, and investing comes with risks. But a general principle I like is: Are the fundamentals already priced in or is the market underinvested in a potential opportunity?
In my opinion, the post-halving BTC events will be behind us, and instead of just “selling the news”, in this case we can “move to the alts”, especially Ethereum.
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