• The price of ether extended its gains, rocketing 20% over two days.
• The rally comes amid a surge in optimism that the SEC might greenlight spot ether ETFs ahead of its first deadline later this week.
• The previous consensus was that the funds would likely not be approved.

Cryptocurrencies rose Tuesday amid a late surge in optimism around the U.S. Securities and Exchange Commission's decisions on spot ether exchange-traded funds applications, the first of which is due this week.

Ether led the rally, rising more than 20% over two days to $3,710.31, according to Coin Metrics. Earlier, it rose as high as $3,835.43.

"This sudden flip in expectations is an unexpected boon for [crypto] investors who have been crying out for a driver after the [Bitcoin] halving passed and bitcoin ETFs were launched in the U.S. and Hong Kong," said Antoni Trenchev, co-founder of crypto exchange Nexo. "If the spot ETH ETFs are approved, altcoins should take off as ether is often a leading indicator for the rest of the crypto market."

The rally began suddenly on Monday, amid reports that the SEC has requested key document updates from potential ETF issuers and exchanges. A spokesperson for the SEC said the agency does not comment on individual filings.

Now, investors are considering the odds that the SEC might greenlight spot ether ETF applications. The previous consensus was that the agency was unlikely to approve the funds, based on the lack of engagement by the agency on the filings. By contrast, in the weeks leading up to approvals for bitcoin ETFs, the SEC was reported to be engaging actively with fund issuers.

Final decisions on applications by VanEck and Ark Invest are due this Thursday and Friday, respectively. BlackRock, Fidelity, Invesco, Grayscale and Bitwise Asset Management also have applications awaiting decisions this year.

Ether futures ETFs hit the U.S. market for the first time in October, just a few weeks after courts ruled against the SEC in a landmark case brought by Grayscale that paved the way for spot bitcoin ETFs and may have set a precedent for spot ether ETFs.

The court said the SEC's denial of Grayscale's proposal to convert its popular bitcoin trust into an ETF was "arbitrary and capricious," and that the agency failed to adequately explain why it approved the listing of two bitcoin futures exchange-traded products, or ETPs, but not Grayscale's proposed bitcoin ETP.

Bitcoin hits the brakes

As ether rallied for a second day, bitcoin and crypto stocks lagged. The flagship cryptocurrency was little changed Tuesday, holding on to a 7% gain from the previous day that pushed it above $70,000 for the first time in more than a month. Bitcoin has been rising since last week's April CPI reading showed inflation eased from the previous month, which could open the door again to lower interest rates in the U.S.

Crypto-related equities initially rode the wave higher, but also pulled back on Tuesday. Coinbase and Robinhood, both plays on the trading of cryptocurrencies, were little changed, building on gains of 8% and 9%, respectively, from the previous session. MicroStrategy, which is more of a proxy for the price of bitcoin, fell 4%.

An Ethereum ETF approval could end the lull in crypto, according to Trenchev. Bitcoin has been trading between $60,000 and $70,000 for several weeks, and investors and analysts had expected that trend to last another three to five months.

"Crypto's been in a slumber since March, and we're still in that sideways space," he said. "We need [bitcoin] to break through the record high before we can say categorically that we've broken out of the range."

"Bitcoin should rise on the coattails of Ethereum if we get an [ETF] approval, but let's not get too far ahead of ourselves," he added. "One month doesn't make a summer. We're in a data-centric market. If we get a hot CPI number or a really strong jobs report, you could see the lull continue."