Should Traders Embrace The Ethereum Rally? How Best To Play it?

👇1-11) The one overriding rule in crypto is that announcing a new narrative overrides everything. We have seen this repeatedly: Bitcoin and other crypto assets make massive moves (mostly up) when a new catalyst is introduced, only to sell off once this announcement is realized. The key is to understand the importance of the announcement and react quickly. Traders should be bullishly positioned (at least) until the announcement becomes a fact.

👇2-11) For example, on October 31, 2017, the CME announced the launch of Bitcoin futures “sometime in Q4 2017”. Until the launch on December 18, 2017, Bitcoin rallied by +150%. Similarly, on January 28, 2021, Coinbase announced the direct listing on April 14, 2021. Bitcoin rallied by +80% during that time. We could quote numerous examples, such as Blackrock's Bitcoin Spot ETF filing on June 15, 2023.

👇3-11) This is why we were so bullish in Q4 2023, as a similar playbook was at work that could cause a significant rally. By September 2023, Bitcoin had traded near 25,000, but based on the historical playbook when new regulated Bitcoin products were announced, we expected a rally to 45,000. But what is the best way to play today’s Ethereum hype?

Ether Futures Open Interest (white, RHS) vs. Funding Rate (purple, LHS)

👇4-11) The message is almost always the same: Bitcoin tends to rally from the run-up to an event until the actual event becomes a fact. For traders like us, it’s essential to quickly throw out the old playbook and adjust to the new reality—even if this might just be temporary. There tends to be a lot of money to be made in those run-ups.

👇5-11) Take Metaplanet, a small-to-mid-sized Japanese corporation that announced on April 8 the acquisition of 118 BTC (worth $7.2m) in a copy trading move to MicroStrategy’s first Bitcoin purchase in August 2020. As the Japanese regulator has not yet approved a Bitcoin Spot ETF, some have used this stock as a proxy, especially as Metaplanet announced on May 13 that it aims to use ‘full spectrum tools to enhance its Bitcoin reserves.'

Metaplanet (3350.T, purple) doubled, tripled, and quadrupled.

👇6-11) Metaplanet used similar arguments as MicroStrategy, just a playbook for Japan: rising debt burdens for Japan and the country’s rapid currency depreciation. After the April 8 announcement, the stock doubled, gave back -20%, and then rallied +200% over several days after the May 13 announcement. The lesson: don’t discount the announcement; see how you can get exposure to the news.   

👇7-11) Although we expect Ethereum Spot ETFs to start trading reasonably soon (in weeks, potentially in June, at the latest in July), the market could cause ETH prices to rise significantly into the actual date when those ETFs start trading. The ETF issuers did not expect the SEC to approve these products and, hence, still need sufficient capital on day 1. The issuers might prefer a later starting date, which would cause ETH to rally even more as expectations grow.

👇8-11) During the last week, ETH futures open interest increased by $4bn (or +45%) to $12.8bn vs. Bitcoin’s $18bn, which increased by just +3% during the last seven days. The trade might be ETH > BTC, as that is the catalyst. Traders were rapid to add a lot of ETH risk. Despite some talk that SOL ETFs could be approved next, SOL futures open interest have stayed flat as traders are not expecting any SOL ETF approval soon.

👇9-11) When it became apparent that the SEC would approve ETH ETFs without ETH being staked, Lido (LDO-USDT) rallied from $1.50 to $2.60 (+67%) in a few days. However, there could still be more upside at Lido’s TVL, which increased from $27bn to $36bn – similar to the TVL level when LDO traded at $3.10 (vs. $2.60 now). Staking and increasing TVL signifies trust and expectations that prices for ETH could rise.

👇10-11) Overall, DeFi TVL has increased by $17bn in just one week to $107bn, its highest level since the midst of the Terra/Luna crash in May 2021. Ethena (ENA-USDT) quietly increased its TVL from $2bn to $2.8bn last week. The ETH funding rate should remain elevated (>10% annualized) so the ENA-USDT token price can reclaim its previous high.

👇11-11) While there are many ways to play this bullish Ethereum ETF thesis, for example, outright long ETH-USDT, the most beta might be achieved through long ENA-USDT. In its simplest form, ETH-USDT might rally until the ETFs start trading. Nevertheless, we are bullish, and Bitcoin should also make a new all-time high.

Ethena’s TVL continues to increase, ENA-USDT could catch up.