The approval of spot Bitcoin ETFs created a classic "sell the news" event, leading to a volatile few weeks in the digital asset markets. In response, Ethereum and altcoins staged a strong rebound last week. For the first time since October 2022, Ethereum's performance surpassed that of Bitcoin.
Activity in ETH derivatives markets also increased, suggesting a potential shift in capital flows. Although Bitcoin still dominates in open interest and trading volume, ETH has regained some market share since the ETF approvals. We also evaluate the relative performance of Solana, scaling tokens, and various sector indices against BTC and ETH to gauge risk appetite in the post-ETF era.
Market Reaction to ETF Approval
Prior to the Bitcoin ETF approval, the digital asset market experienced a wave of speculative excitement, followed by a broad sell-off in the days after the event. As discussed in our previous report, the market priced this event almost perfectly. Since then, the price of Bitcoin has fallen by as much as 18%, hitting a low of $39.5k at the time of writing.
Despite Bitcoin's correction, investors are looking ahead and asking: What's next? Will there be a new wave of speculation about a potential ETH ETF approval? Will Solana continue to outperform both ETH and BTC? Or is the appetite for risk shifting toward smaller-cap tokens?
Since mid-October, digital asset markets have performed strongly, driven by ETF speculation and capital rotation narratives. Since BlackRock first filed for its ETF, Bitcoin's market cap has grown by 68.8%, and the total altcoin market cap has followed closely, rising by 68.9%. However, Ethereum's relative momentum has been weaker, underperforming the broad altcoin universe by 17%.
Zooming out, we can see that Bitcoin has generally become more dominant over the past few years. Since the collapse of FTX in November 2022, Bitcoin's market cap dominance has risen from 38.9% to 49.8%. Ethereum, on the other hand, has maintained its market cap dominance, staying between 18.9% and 18.2%. The main losers in market share have been altcoins (excluding ETH), which fell from 28.3% to 24.2%, and stablecoins, which declined from 13.9% to 7.8%.
Shortly after the Bitcoin ETF approval, several issuers filed or expressed willingness to advocate for a spot Ethereum ETF. Although an Ethereum-based ETF may face greater regulatory challenges because the SEC may view ETH more as an investment contract, the market appears optimistic. In recent weeks, the price of Ethereum has surged by more than 20% against BTC, marking its strongest performance since late 2022 on quarterly, monthly, and weekly timeframes.
Concurrently, ETH and altcoin market dominance have experienced a slight rebound. ETH's share of market capitalization relative to Bitcoin increased by 2.9%.
Meanwhile, ETH investors realized net profits at multi-year highs. Although profit-taking has increased since mid-October, the peak on January 13 exceeded $900 million per day, consistent with investors capitalizing on the "sell the news" momentum.
Positive market sentiment for ETH is also supported by another metric: the Net Unrealized Profit/Loss (NUPL) of short-term holders. For the first time since the peak in November 2021, STH-NUPL has exceeded 0.25. This indicates growing optimism but also suggests that the market may be due for a pause to digest profit-taking pressure. Historically, such sentiment shifts among short-term holders have coincided with local peaks within macro uptrends.
Derivatives Shift Focus
Given Ethereum's recent rally, it is worth examining its derivatives markets to assess the response from leveraged markets. In recent weeks, we have seen meaningful growth in trading volume for both futures and options contracts. Combined, the ETH market's total trading volume is $21.3 billion per day, exceeding the 2023 average ($13.9 billion) but still well below the levels common in 2021–2022.
Considering the dominance of futures open interest, we can also compare the relative size of the ETH derivatives market to BTC. In January 2022, BTC perpetual swaps accounted for 55% of open interest and have since risen to 66.2%. Conversely, ETH's share of open interest fell from 45% to 33.8% between 2022 and 2024. However, after the ETF approval, ETH regained some market share, with its dominance by this metric recovering to around 40%.
ETH futures funding rate premiums are also relatively large, indicating higher risk appetite compared to Bitcoin. Over the past three months, Ethereum's funding rates have exceeded Bitcoin's, but they have not grown significantly in recent weeks. This suggests that speculative interest in betting on higher ETH price action has not yet increased dramatically.
Interestingly, when the ETH-BTC funding rate spread spikes above its one-year average, it has typically coincided with local peaks in ETH price.
ETH or Altcoins?
The digital asset market is highly competitive, with Ethereum vying for capital flows not only against Bitcoin but also against other layer-1 blockchain tokens.
Solana (SOL) was a standout in 2023, delivering impressive price performance despite significant setbacks related to its association with FTX. SOL has gained considerable market share over the past 12 months, with the SOL/BTC ratio fluctuating between 0.0011 and 0.0005. Since October 2023, the SOL/BTC ratio has increased by 290%, significantly outperforming ETH during this period. Interestingly, unlike ETH, SOL did not show any pronounced strength following the Bitcoin spot ETF approval.
As noted at the beginning of this report, Bitcoin's market cap has increased by nearly 69% since BlackRock's ETF application. When we break down the altcoin market into different sectors, we find that the main drivers of this trend have been tokens associated with Ethereum scaling solutions, such as OP, ARB, and MATIC.
Since the end of last year, staking and GameFi tokens have also outperformed BTC. The staking tokens/BTC ratio rose by 103% in early 2023 but then fell by 65%, bottoming in December. Similarly, the GameFi tokens/BTC ratio increased by 55% in February 2023 before declining by 75%. Scaling tokens peaked later in 2023, with the scaling tokens/BTC ratio rising by 95% in Q2 and Q3. Notably, the Arbitrum token was launched only in March 2023, which may have been a trigger for its outperformance.
Following the Bitcoin ETF approval, all indices rose slightly, indicating some risk appetite as Bitcoin sold off after the news.
However, compared to ETH, altcoins have generally underperformed in recent weeks. ETH has outperformed altcoins broadly, increasing its dominance in the total crypto market cap by 4.2%. This makes ETH the biggest winner in the post-ETF market move.
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Frequently Asked Questions
What caused the recent rebound in Ethereum and altcoins?
The rebound was largely a response to the Bitcoin ETF approval, with investors rotating capital into other assets like Ethereum and altcoins. ETH's performance surpassed Bitcoin's for the first time since October 2022, driven by speculation about a potential Ethereum ETF.
How have derivatives markets reacted to Ethereum's price movement?
Activity in ETH derivatives markets increased, with growth in trading volume for futures and options. Although Bitcoin still dominates open interest, ETH regained some market share post-ETF approval. Funding rates for ETH futures also indicate relatively high risk appetite.
Which altcoins have performed well compared to Bitcoin?
Solana has been a standout, with the SOL/BTC ratio increasing significantly since October 2023. Tokens related to Ethereum scaling solutions, such as ARB, OP, and MATIC, have also outperformed, along with staking and GameFi tokens in certain periods.
Is now a good time to invest in Ethereum?
Market indicators show optimism, with short-term holder sentiment positive and realized profits at multi-year highs. However, these conditions have historically coincided with local peaks, suggesting potential for a pause or correction as profit-taking occurs.
What is the outlook for an Ethereum ETF?
Several issuers have expressed interest or filed for a spot Ethereum ETF. However, regulatory challenges may be greater than for Bitcoin, as the SEC may view ETH differently. Market sentiment remains optimistic, but approval is not guaranteed.
How can I track these market trends?
Using on-chain analytics platforms and monitoring derivatives market data can provide insights into capital flows and investor sentiment. Keeping an eye on ETF-related developments and regulatory news is also crucial.
Conclusion
The spot Bitcoin ETF approval became a classic "sell the news" event, leading to a turbulent period. Ethereum emerged as a short-term winner, with strong performance and increased derivatives activity. ETH investors realized significant profits, indicating willingness to capitalize on ETF speculation. Solana remains a strong contender among layer-1 tokens, though it showed no pronounced strength post-ETF. Altcoin sectors gained some momentum, suggesting investors are positioning for the next wave of speculation.
Disclaimer: This report does not provide any investment advice. All data is for informational and educational purposes only. No investment decisions should be made based on the information provided here, and you are solely responsible for your investment choices.