Was Ether's Bitcoin-Beating Surge a One-Off, or Has The Tide Really Turned?

Ether (ETH), the native token of Ethereum's smart-contract blockchain, surged 12.2% Thursday, outshining bitcoin for the first time in ages. The rally came on reports that BlackRock (BLK), the world's largest asset manager, wants to create an exchange-traded fund (ETF) that purchases ETH and saw the ether-bitcoin ratio rise by 9% from 17-month lows.

Activity in the options market suggests ether's outperformance is more than a one-off event and could continue over the near term.

The spread between Deribit's forward-looking 30-day implied volatility indices for ether (ETH DVOL) and bitcoin (BTC DVOL) has turned positive in the past 24 hours, reaching a high of 5.9%, the highest since April, according to Amberdata. Implied volatility refers to investors' expectations for price turbulence over a specific period.

The positive turnaround indicates traders expect more action in ether over the next four weeks. Perhaps optimism about an eventual launch of a spot BTC exchange-traded fund (ETF) in the U.S. has been priced in, and the focus is now on ether.

"The market has been chasing BTC for the last month, but it looks like the spot BTC ETF launch is now very close to being priced in," said Jeff Anderson, a senior trader at STS Digital. "ETH was left behind in October, but the [BlackRock] filing yesterday reminded everyone that a similar product is not far behind."

"The rotation out of BTC into ETH (during alt season was attractive), and so the market chased it and caught people short options, so [ETH IV] ripped higher," Anderson added. As such, people look to be chasing ether now that it shows signs of life.

Bitcoin has surged over 35% since early October, mainly on expectations that a potential spot ETF could bring a $100 billion or more in inflows over five years.

Similar inflows could have a bigger impact on ether, whose market capitalization of $252.41 billion is just 1/3 of bitcoin's $713.10 billion.

"ETH has a relatively minor market cap than BTC, which means that when the same size of liquidity flows into ETH, the price of ETH will be pushed higher, and the volatility will be greater," Griffin Ardnern, a volatility trader from crypto asset management firm Blofin, said.