Bitcoin and ether diverge after SEC’s bitcoin ETF snafu

Bitcoin and ether prices have diverged sharply following Tuesday’s false start with regard to spot bitcoin ETFs.

Traders pushed bitcoin $1,000 higher only moments after the US Securities and Exchange Commission posted a supposed approval of spot bitcoin ETFs on US exchanges to its X account.

Those 2% gains were wiped just as fast after the agency and Chair Gary Gensler confirmed the posts were unauthorized. 

X, formerly known as Twitter, later disclosed that the SEC’s account had been compromised after failing to enable two-factor authentication. A SIM swap of a phone number tied to the account remains the most likely explanation.

Read more: SEC will investigate, ‘determine appropriate’ steps following X account compromise

Bitcoin (BTC) and ether (ETH) are typically correlated, but their connection curiously unraveled in the hours after the SEC snafu. 

As bitcoin sank 5% upon realization that the SEC’s post wasn’t legitimate, ether did the exact opposite, rising 6% from $2,250 to $2,400. 

Those moves led the ETH/BTC ratio, which measures the cost of 1 ETH in terms of bitcoin, to bounce hard from 32-month lows of 0.048 BTC to 0.05319 BTC — an 11% recovery.

The pair’s 30-day correlation coefficient had been steadily falling since mid-Decemeber, however, when bitcoin and ether had effectively traded in tandem. 

The coefficient is now around 0.5, halfway between completely correlated and uncorrelated. Ether is now outperforming bitcoin over the year to date.

In fact, ETH is the by far best performing top-10 cryptocurrency by market cap (sans stablecoins and liquid staking tokens) since the SEC’s phony ETF post. Solana (SOL) and bitcoin have shed 5% and 4%, respectively, while ether has jumped more than 7%.

Read more: Ethereum Improvement Proposals to watch in 2024

Mike Tauckus, head of trading at boutique digital asset unit BitOoda, reasoned that ether’s outsized performance could be the result of traders looking to capitalize on hype of a potential spot ether ETF, now that a bitcoin fund seems all but a done deal.

“We’ve seen a big shift in front end skew, with traders and physical players buying downside protection should the ETF be denied or postponed further,” Tauckus wrote in a research note.

“After breaking support of .051 and trading as low as .048 yesterday, the ETH/BTC spot spread rebounded late in the afternoon and overnight…as traders may already be shifting their focus toward a spot ETH contract.”

“Implied Vols are slightly lower in the front end this morning as the market continues to wait for some REAL news on the ETF front.”

The SEC is due to weigh in on Ark and 21Shares’ spot bitcoin ETF application at some point today, with analysts and industry insiders anticipating a decision after US markets close.

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