The market appears to be undervaluing the potential of U.S. spot bitcoin ETFs, according to crypto research firm K33 Research.

"It's a buyer's market — prices 'should' have gone up," K33 Senior Analyst Vetle Lunde and Vice President Anders Helseth wrote in a new report.

A spot bitcoin ETF approval should attract "enormous" inflows, creating substantial buying pressure on bitcoin, the analysts said. On the flip side, a rejection would merely maintain the status quo.

"The market is fundamentally underappreciating great news," they noted. 

Grayscale's recent legal win in its ongoing battle against the Securities and Exchange Commission led to a brief 6% market surge before fully retracing as the agency delayed seven spot bitcoin ETF proposals from BlackRock, Fidelity, VanEck, WisdomTree, Invesco, Bitwise and Valkyrie until mid-October.

Meanwhile, the Nasdaq 100, often seen as a barometer of the market's risk appetite, has climbed by 2%. Given the heightened likelihood of spot ETF approvals, with Bloomberg analysts predicting a 75% chance of approval this year, the market's valuation seems mispriced, Lunde and Helseth added.

Derivatives market sentiment could 'turn in a heartbeat'

While sentiment in the crypto derivatives market remains negative, with funding rates, CME basis and next-month premiums consistently below average since mid-August, that sentiment could "turn in a heartbeat," the analysts said.

"You should not derive too much signal from the current derivatives market. It is pessimistic but without any conviction," they added. "Open interest remains stable," and there are no significant flows into bitcoin futures ETFs. The options market's skew, which gauges traders' bullish or bearish inclinations, is notably volatile.

Ether exposure 'looks favorable'

September and October favor a more substantial exposure to ether, with the second-largest cryptocurrency carrying stronger ETF momentum in the short term, K33 Research wrote.

Futures-based ether ETFs could get a final verdict in mid-October, with the SEC said to be ready to greenlight the proposals. With CME's ether futures operational for over two years and no filings retracted, the scales are tipped in favor of approval, the analysts said.

In 2021, futures-based bitcoin ETFs from Proshares, Valkyrie and VanEck led to a 60% rally in BTC over three weeks. ETHBTC is trading near its 2.5-year lows at 0.063, making it a strong relative buy, Lunde and Helseth argued.

Last month, K33 said bitcoin was now less volatile than the Nasdaq, S&P 500 and gold, adding that an "eruption" in price swings is near.