The Ethereum (ETH) price increased yesterday and nearly broke out above its 2023 highs today.In contrast, the Bitcoin (BTC) price decreased since yesterday and fell below $45,000 today.Ethereum Pumps on Bitcoin ETF NewsYesterday, the SEC tweeted that the Bitcoin ETF has been approved. However, shortly afterward, SEC chair Gary Gensler declared that the social media account was compromisedand a decision on the Bitcoin ETF had not been made yet.The price movement for BTC and ETH (green) has diverged since the announcement. While the ETH price has increased by 5%, BTC has fallen by 4%.On-chain data shows that over the past 24 hours, a whale borrowed $11 million worth of BTC from the AAVE lending protocol and swapped it for $11 million worth of ETH. On-chain data also shows that ETH whale holdingsare increasing at an unprecedented rate.Smart Money flows also show that there has been more than $23 million flowing into ETH over the past 24 hours.What Do the Analysts Say?Cryptocurrency traders and analysts on X believe that the narrative has shifted, and a flow of funds from Bitcoin to Ethereum has started.Alex Kruger stated that the ETH/BTC bottom is likely in:Most components for an $ETHBTC bottom are here: – narrative shift: from BTC ETF to ETH ETF – upcoming events: EigenLayer airdrop – chart: 50% correction + fakeout of 2022 lows – sentiment: extreme pessimismWill Clemente tweeted a chart of ETH/BTC, which shows a deviation below the 2022 lows.Finally, Cold Blooded Shiller suggests that the narrative will switch to an ETH ETF, causing the price to pump. #ETH 🚀🚀🚀🚀💸💸

ARK21’s deadline has set the stage for a potential spot Bitcoin ETF approval announcement by the SEC. #BTC to 🚀🚀🚀🚀💸🚀 moon 🌕 Cathie Wood’s ARK’s spot Bitcoin ETF is one of the many proposals put forward for the US Securities and Exchange Commission (SEC).Dubbed ARK 21Shares, the product was developed in collaboration with Swiss firm 21Shares, which offers crypto exchange-traded products.Ark21’s Deadline Raises Confidence in ETF Announcement TonightAn update from QCP Capital indicates a high chance of an announcement tonight. This is based on the conclusion of ARK21’s deadline today as well as the SEC’s historical pattern of approving all ETFs simultaneously.“The chances of an announcement tonight are high given Ark21’s deadline expires today and the SEC has historically approved all ETFs at once.”The ARK 21Shares Bitcoin ETF filed Form 8-A with the SEC on January 4th to register its shares as securities listed on the Cboe BZX Exchange. The SEC’s upcoming meeting, scheduled for January 11, is the day following the deadline for approving or denying Ark and 21Shares’ proposal.The securities regulator has not approved a spot Bitcoin ETF to be listed on a US exchange despite numerous pending applications. Last January, the SEC rejected the proposal to list the ARK 21Shares Bitcoin ETF on Cboe BZX, citing insufficient measures in the application to prevent fraudulent and manipulative acts.In August 2023, Grayscale Investments secured a win against the SEC from US Court of Appeals Circuit Judge Neomi Rao to reconsider its spot Bitcoin ETF application, leading to the reversal of the commission’s decision to deny the GBTC listing application.This move prompted a comprehensive review of all pending spot Bitcoin ETF applications. If ARK 21Shares’ application receives approval, the spot Bitcoin ETF will be listed with a fee of 0.21%, indicating a reduction of four basis points from the originally proposed number on Tuesday.This comes after Ark Investment Management LLC reduced fees, intensifying the competition among issuers aiming to enhance the appeal of their products to investors in anticipation of a regulator’s decision on their fate.Seriatim Vote on Bitcoin ETF ApplicationsWhile SEC meetings, whether open or closed, are publicly disclosed, Chair Gary Gensler might choose a seriatim vote for Bitcoin ETF applications. This approach enables collecting votes without publicly convening a meeting.The SEC explains the process as,“Matters are often voted “by seriatim,” which means that these matters are being circulated to each Commissioner’s office in turn, Commissioner-by-Commissioner, for his or her vote. The Chair typically votes last, but given that the Chair decides whether to circulate a seriatim in the first instance, it is reasonable to assume the Chair will approve it.”The agency has occasionally refrained from voting on crypto ETFs, opting instead to delegate authority to staff, a process designed by the SEC to conserve Commission resources. SEC Commissioner Hester Peirce had previously mentioned that many initial denials of Bitcoin exchange-traded products were issued by the staff under authority delegated from the Commission.

Spot BTC ETF Deadline Set for this WednesdayJust when we thought we had seen it all, here comes the SEC’s X account posting:“Today the SEC grants approval for #Bitcoin ETFs for listing on all registered national securities exchanges. The approved Bitcoin ETFs will be subject to ongoing surveillance and co.”Only to witness a few minutes SEC’s Chair himself, Gary Gensler, denying the announcement:“The  @SECGov  twitter account was compromised, and an unauthorized tweet was posted. The SEC has not approved the listing and trading of spot bitcoin exchange-traded products” said SEC Chair Gary Gensler.So, someone posted this fake announcement that spot bitcoin ETFs had been approved. Despite this, approval is still expected to happen tomorrow.What’s most comical is that based on X team investigation, the compromise was, in their words, “not due to any breach of X’s systems, but rather due to an unidentified individual obtaining control over a phone number associated with the  @SECGov  account through a third party,” the X team said.The most laughable? The account “did not have two-factor authentication enabled” the X team added. And this is the entity trying to set financial cybersecurity standards?Nonetheless, the hack of the SEC’s account has brought to life an event we had long anticipated, that is, the news, while believed to be true, turned out to be a “sell the news” event.Credited to  @therationalrootVol Carry Still PositiveOver the past week, there’s been a significant increase in crypto volatility, especially as we near the ETF approval deadline this Wednesday. Last week, a sudden market drop occurred due to rumours of SEC rejection, leading to the liquidation of leveraged long positions. However, the market has since recovered, with Bitcoin reaching new local highs near $48,000 after the fake ETF approval news.Implied volatilities have risen, particularly in the short term, to counteract the impact of option price decay or theta. This rise in implied volatilities, typical before major volatility events, keeps the volatility carry positive. But once the ETF news is released, we expect a sharp decrease in these implied volatilities. The Bitcoin rally before the official news and the continued high Ethereum volatility indicate a favourable environment for long gamma traders. Let’s see if it lasts!BTC’s Term Structure in Expected BackwardationBitcoin’s term structure remains in backwardation ahead of the ETF deadline this Wednesday. Weekly options are resisting value decay until after the event. The rest of the term structure is experiencing slight pressure as traders anticipate a volatility reset. For February/March 2024 expiries, we foresee a significant impact, especially since they don’t include the ‘halving’ event.Ethereum’s term structure has also moved into backwardation, albeit less drastically than Bitcoin’s. The early part of 2024 is down by about 2 volatilities, but long-term Ethereum volatility remains robust, indicating stronger confidence in Ethereum for the rest of 2024. This prediction has been further reinforced after the fake ETF approval where BTC was sold while ETH held steady.ETH/BTC Vol Spread Favors ETH Premium Out the CurveIn the current market, the Ethereum/Bitcoin volatility spread favors Bitcoin in the weekly expiry by approximately 4 vols. However, as we look further along the curve, the premium shifts to Ethereum, with longer-term expiries showing about a 7 vol premium for Ethereum – a relatively high figure in recent times. The Ethereum/Bitcoin spot spread recently fell below the 0.050 support level due to a sudden move in Bitcoin, making it a good entry point for the spread. It has since recovered though.The rise in back-end Ethereum vol makes call switches less attractive, but bullish risk reversals for Ethereum, coupled with selling out-of-the-money BTC calls, appear to be a viable strategy. If Bitcoin falls below key support levels like $40,000, adding BTC puts or put spreads could enhance the trade.Interesting Moves in BTC SkewThis week, the Bitcoin skew term structure showed notable changes. Weekly skew shifted to put premium due to increased hedging demand, but outright put protection was less favored compared to put spreads.The rest of the term structure still shows call premium, with the highest at the back end near 5 volatilities. Ethereum’s skew reflected a similar pattern, with weekly puts gaining more premium, possibly indicating higher beta for Ethereum in a general crypto downturn.Short-term overwriting flows in Ethereum have reduced call premium. For long-term Ethereum bulls, call spreads are becoming a more efficient strategy. In case of a market sell-off, low-cost bullish risk reversals are worth considering, as call premium could rise further.Option Flows And Dealer Gamma PositioningBitcoin trading volumes surged by 45% as prices fluctuated between $41,000 and $48,000 over the week. Traders primarily focused on short-term expiries (12-19 January) for protective buying against event risk, with notable activity in call spreads and calendar call spreads for March 2024.Conversely, Ethereum volumes fell by 35%, with the spotlight on Bitcoin. The $2,500 strike was the most active, through either direct call buying for January expiries or through call calendar buys for February/March 2024 and March/June 2024.Bitcoin dealer gamma positioning was more balanced this week, with a significant long position at the $50,000 strike balancing smaller positions at lower strikes. Dealers are likely to prevent Bitcoin from breaching $50,000 as they manage their long gamma exposure.Ethereum dealer gamma remains relatively flat, with short positions above $2,500 indicating potential for upward momentum. However, a short-term Ethereum rally is doubtful without Bitcoin also rising, given the prevailing focus on the ETF narrative.Strategy Compass: Where Does The Opportunity Lie?Monetising short-dated calls and/or rolling them into longer term call spreads seems like a no brainer at this point. Look past the ETF noise and lean on the “halving” being a supportive longer-term narrative. Also selling some calls against long positions to earn premium works if you agree with us that 50k should act as a resistance into 26Jan.We have been hedging a lot of our crypto exposure, and will be looking to add risk back again on any dips over the next few weeks. ETH remains our preferred long here, given where the spread has got to, and we like June 2024 call spreads and bullish risk reversals.