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No, "grammatically" it cannot mean both. ἐν ἀρχῇ is a simple temporal reference and a clear allusion to Gen 1:1.
According to Wallace that depends on whether one advocates the 8 case or 5 case system. His example is exactly what I was proposing at John 1:1b and speculating for 1:1a.
(3) Such a difference in definition can affect, to some degree, one’s hermeneutics. In both systems, with reference to a given noun in a given passage of scripture, only one case will be noted. In the eight-case system, since case is defined as much by function as by form, seeing only one case for a noun usually means seeing only one function. But in the five-case system, since case is defined more by form than by function, the case of a particular word may, on occasion, have more than one function. (A good example of the hermeneutical difference between these two can be seen in Mark 1:8—ejgw© ejbavptisa uJmaçß ud{ ati, aujto©ß de© baptisei u v maJ ß e ç n pneu j mati a v giJ vw/[“I baptized you in water, but he will baptize you in the Holy Spirit”].
Following the eight-case system, one must see u{dati aseither instrumental or locative, but not both. In the five-case system, it is possible to see u{dati as both the means and the sphere in which John carried out his baptism. [Thus, his baptism would have been done both by means of water and in the sphere of water.] The same principle applies to Christ’s baptism ejn pneumati , which addresses some of the theological issues in 1 Cor 12:13).
@John Milton, you said before that it cannot be both. Does Wallace change your view?