Ether, the second-largest cryptocurrency, emerged as one of the biggest beneficiaries of the decision by US regulators to approve the country’s first spot bitcoin exchange-traded funds (ETFs).

Ether rose 9% in the past 24 hours to US$2,585 as of 7.11am on Thursday in London - a 20-month high - whereas bitcoin was little changed at US$46,070 after a more than 160% jump in the past year.

The disparity hints that traders are betting ETFs investing directly in Ether are next in line to get the green light from the US Securities and Exchange Commission (SEC), and that the token has yet to reflect that outlook.

In contrast, bitcoin already posted a months-long surge on optimism that approval for ETFs investing directly in the largest digital asset was on the way. That’s led to speculation that the rally may be close to exhausted for now.

“With Ether’s size, liquidity and existing CME futures, it has the attributes, using the now successful bitcoin model, that make a physical US ETF viable,” said Richard Galvin, a co-founder of Sydney-based crypto asset manager DACM.

ETF-based staking

Ether is the token of Ethereum, the crypto sector’s commercially most-important blockchain. Investors can earn rewards by pledging Ether tokens to help operate the blockchain, a process called staking.

Harnessing this payout is technically complicated, but Ether ETFs could stake their holdings, which may add to the appeal of such products for investors, Galvin said. Ether staking currently pays out the equivalent of 4.3% annually in the form of more coins.

The hype over bitcoin ETFs contributed to Ether underperforming its larger rival in 2023. At the start of this week, the ratio of Ether’s price relative to bitcoin was at the lowest since 2021. The ratio has since ticked higher, courtesy of Ether’s recent bump.

Laurence Smith, a senior strategist at Consensys, wrote in a note that the SEC’s green light for bitcoin funds “is likely only the first digital-asset ETF approval - we expect an Ether ETF to be next”.

The SEC on Wednesday authorised spot bitcoin ETFs from asset management heavyweights BlackRock, Invesco and Fidelity, as well as products from smaller competitors such as Valkyrie, to begin trading on Thursday. 

BlackRock, VanEck, Invesco and 21Shares are among those that are seeking to start spot Ether ETFs. 

  - Bloomberg