The U.S. Securities and Exchange Commission (SEC) is moving closer to its Bitcoin ETF decision deadline on Jan. 10, with the market hopeful about approval.
This pivotal event could have wide-ranging implications on the crypto market, including the second-largest cryptocurrency, Ethereum.
Ethereum ETF hopes
Approving a Bitcoin ETF could set a regulatory precedent to ease the path for other crypto-based ETFs. The reasoning is that a Bitcoin ETF approval would likely involve establishing a framework that could be applicable to other cryptocurrencies, including Ethereum.
In December 2023, the SEC delayed its decision on several pending Ethereum ETF applications in the U.S. to May 2024. This includes the Hashdex Nasdaq Ethereum ETF, the Grayscale Ethereum Futures ETF, the VanEck spot Ethereum ETF, and the spot Ethereum ETF lodged by Cathie Wood’s ARK Invest and 21Shares.
These delays are part of the SEC's process, which involves gathering public input before deciding whether these ETFs should be listed. Nonetheless, they also appear amid the commission's attempt to categorize some proof-of-stake (PoS) cryptocurrencies as securities.
Interestingly, Ethereum is not named as a security in any of the SEC's recent lawsuits targeting crypto exchanges. The commission has also not challenged Ethereum's classification through the ETF registration process with the Commodity Futures Trading Commission (CFTC).
Here we go … expect more spot #ethereum ETFs filings in the coming days.
— James Seyffart (@JSeyff) September 6, 2023
NOTE: this is an S-1 and not a 19b-4. Which means it does not start a clock in any way … yet. Expect 19b-4’s soon. https://t.co/sNus2vr5qV
That raises the potential of seeing a spot Ethereum ETF approved in the U.S. by May 2024, a likely boost for ETH prices.
Ethereum-Bitcoin correlation
Providing a Bitcoin ETF approval does not become a sell-the-news event, Ether's price is well-positioned for a rally because of its consistent correlation with BTC's price in recent years.
ETH/USD and BTC/USD's daily correlation coefficient chart. Source: TradingView
Fundamentally, it means a Bitcoin ETF approval may trigger a substantial increase in crypto exposure among traditional investors. In turn, that will likely lead to a surge in ETH price as the market anticipates increased demand.
The #Ethereum supply crisis on exchanges is worsening day by day.📉🚨
— Leon Waidmann | On-Chain Insights🔍 (@LeonWaidmann) January 6, 2024
Every day, supply is getting tighter, which indicates even stronger demand for #ETH.
Massive gains ahead. pic.twitter.com/k0SQJAUDHW
Conversely, a delay or denial may result in short-term bearish pressure as the market adjusts to the setback. A recent Bitwise survey found that only 39% of U.S.-based financial advisers believe a Bitcoin ETF will be approved this year.
Ethereum price technicals hint at correction
From a technical standpoint, ETH's price is treading near the resistance trendline of its prevailing rising wedge pattern ahead of the Bitcoin ETF decision. A delay or denial could result in the price correction toward the wedge's lower trendline near $1,865 by February.
ETH/USD weekly price chart. Source: TradingView
The $1,865 level coincides with ETH's 0.236 Fibonacci line and its 50-week exponential moving average (50-week EMA; the red wave).
On the other hand, an ETF approval may have Ethereum invalidate its rising wedge setup altogether in favor an ascending triangle reversal pattern, as shown below.
ETH/USD weekly price chart. Source: TradingView
The triangle's upside target is near $3,870 by March, up 75% from current price levels, and coinciding with the 0.786 Fibonacci line.
