BTC Halving: Sell the News or Pivot to Buy Alt
“IBIT is the fastest growing ETF in ETF history,” Blackrock (BLK) CEO Larry Fink recently stated in an interview with Fox Business. The SEC's approval of spot Bitcoin ETFs in January and subsequent performance have taken BTC and the broader crypto market to new heights.
First, Bitcoin itself created a new “all-time high” as the price surpassed $70,000. US-based CME futures for Bitcoin has surpassed the open interest of all other exchanges, including Binance, to become the largest BTC derivatives venue. And finally, the futures base rate reaches more than 25% annually, nearly five times the US risk-free rate.
Where does that lead us today?
Bitcoin has one more important fundamental milestone that makes traders and investors excited for higher prices, which is the Bitcoin halving event. Expected to take place around April 20 (perfect meme of course), the Bitcoin block issuance rate will drop from 6.25 coins per block to 3.125.
Although the sample size is small, over the past years when Bitcoin had its halving event, performance from January to December averaged around 200%. This means that the year-end price of BTC is around 91,500 USD.
That said, from a derivatives trading perspective, the predictability and certainty surrounding the halving is not unlike the uncertainty of the SEC's spot ETF decision and subsequent ETF adoption . That means traders will not be surprised by a completely known event. With this understanding, using Bitcoin derivatives in contrast to Ethereum will tell us the story around the potential opportunity for a post-halving spin.
Looking at the April 26 options expiration (top) compared to the June 28 option expiration (bottom), we can clearly see the pricing dynamics for both Bitcoin options and Ethereum. First, on April 26, Bitcoin call options were priced significantly higher than Ethereum calls, while Ethereum puts were priced higher than BTC puts.
Longer-term options for June 28 are almost overlaid, suggesting a strong relationship between BTC and ETH that will play out steadily over the long term.
This tells me that the current halving story is being priced into short-term BTC options, and at the same time, the lack of optimism surrounding Ethereum due to the possibility of being designated a “security” by the SEC and potentially potential disapproval of a spot ETF. in May is causing traders to bid up Ethereum put options.
Another thing I want to point out is the difference in CME-led positioning between BTC and ETH.
Looking at the top chart of BTC derivatives positioning, we can see that CME futures (green) really started in earnest in October around exchange-traded ETF approval enthusiasm. right. Today, CME's BTC open interest far exceeds that of any other exchange, including Binance.
If we look at Ethereum CME open interest, we see almost no increase while Binance continues to exceed CME open interest by a large margin. This tells me that the US market has not yet begun to build a position towards Ethereum; and whether we should be moving towards a spot ETF for Ethereum, whether in May or later (after initial rejections), buyers are not yet focused on Ethereum.
So why should we care about this lagging Ethereum buying opportunity?
While the market is excited about the BTC halving slowing the rate at which coins are released into circulation, (clearly shown by the 4/26 options), ETH supply has not only stopped increasing but since September 2022, is decreasing due to EIP -1559 burns.
Ethereum also just successfully completed the Dencun upgrade, as L2 and L3 begin to facilitate the development of RWA, DeFi and NFTs, along with the ability to build native “application chains” for exchanges. High-throughput protocols want to isolate operations within their own environment.
No one knows for sure what the future will hold and investing always carries many risks. But a general axiom that I like is are the fundamentals priced in or is the market not sufficiently invested in a potential opportunity?
In my mind, after the halving, the BTC events will be behind us and instead of simply “selling the news” we can “move to altcoins” in this case, specifically Ethereum.
