It’s been one of the most fascinating weeks in crypto in recent memory. With the Ethereum ETF seemingly moving from a track of rejection to one of imminent approval, it’s hard to understand what’s really going on behind the scenes in Washington. One of two scenarios is true, and we’ll likely have to wait until some reports dig up the details before we find out: either the ETF was already on track and market expectations were wrong, or the Democrats realized that being anti-crypto was the wrong side of an increasingly politicized conversation in an election year and hastily changed course. (If the latter, then we expect the veto over SAB 121 repeal to effectively disappear!) As details come out, we’ll post some more comprehensive thoughts on how the political and regulatory landscape may have meaningfully changed over the past few days.

But let's talk price action! ETH is up 22% this week and on track for its biggest weekly chart in history. The question now is, if an ETH ETF is indeed approved, what does this mean for the price of ETH going forward? We can look at price action around BTC as a potential roadmap. It could be argued that ETH has seen some gains since January in anticipation of ETH approval, but given that ETH has mostly underperformed BTC to its left and SOL to its right, it seems more likely that ETH ETF approval had not yet been priced in prior to this week.

The starting gun for the BTC ETF was on October 24th, when Blackrock’s IBIT was listed on the DTCC, which caused BTC to rise by about 17%. That was the moment the market realized that the arrival of an ETF was very likely, and I thought “we are there”. From then until the ETF was actually approved in January, BTC rose another 33%. In the two weeks after the ETF was listed, BTC actually sold off, but once inflows began to exceed outflows, BTC’s first quarter rally began and did not stop in two months, rising another 90% to a new all-time high.

ETH won’t follow the exact same price action; it’s not as easy to trade. The numbers below are not price predictions, but they are price levels we’d see if ETH matched BTC’s performance before and after ETF approval (and that’s assuming we do get approval, which is still not guaranteed). But the analysis does suggest that the ETH rally we’ve seen so far this week could be just the beginning. The 20% rally on Monday’s headlines looks a lot like BTC’s 17% rally on Oct. 24th. If we do work toward approval, we can expect ETH to continue to rise by 25% between now and the approval date. (That would put ETH at around $4,600.)

What’s most interesting, though, is what happened afterwards. At the end of the day the BTC ETF was approved, BTC was at $45,000. It fell 15% over the next two weeks, but then rebounded to a new high of $72,000 in the following two months, a 60% increase from the price on the approval date. If ETH reaches $4,600 after the approval date and price action is similar to BTC, it will rise to around $7,400. Again, these are not price targets, just benchmarks set by BTC.

So, the first question is what will the ETH ETF subscription flow look like? Specifically, what will be the proportion of ETH subscriptions compared to the initial BTC subscriptions. The best indicator is probably the relative size of the GBTC Trust vs. the ETHE Trust, a snapshot taken before the GBTC product was converted to an ETF. ETHE is about 25% the size of GBTC, which is probably a good indicator. People may be less interested in an ETH ETF than a BTC ETF due to the lack of staking returns, but we think the ETF crowd tends to be a group that does not usually have access to spot, and therefore cannot get staking anyway. The next question is what impact does a dollar invested in an ETH ETF have on the price of ETH compared to a dollar in BTC. ETH market cap is about one-third of BTC market cap, so the same notional value should have a larger impact on ETH. Similarly, ETH liquidity is about one-third of BTC liquidity. Combining these data points: if we expect ETH subscriptions to be about 25% of BTC, but ETH liquidity is only about 33%, then the price impact of an ETH ETF should be roughly the same as a BTC ETF.

In terms of trading, the easy answer is "Strap in!", but the strategies we're seeing deployed are primarily buy-side flows into meaningful OTM ETH options. As a market, we're so used to thinking in ranges that a 22% move in ETH feels pretty huge. However, if an ETH ETF is approved and ETH follows the same path as BTC, it could put deep OTM calls into play very quickly.