Unexpected Volatility in Bitcoin Values Raises Concerns over Spot BTC ETF Approval
Summary:
Market participants observed a swift fluctuation in Bitcoin (BTC) values on January 9th, following a post hinting at the endorsement of all spot BTC ETFs by the U.S. SEC, causing BTC price to hover around $46,000. Investors worry this could impact the ETF decision due on January 10th negatively. Analysts hesitated to give high hopes for approval, as Bitcoin fails to maintain value above $45,000. This, paired with the dropped futures premium, may reflect decreased demand from leverage long buyers. Future approval of Grayscale's spot ETF fund conversion by the SEC could offer a shot at arbitrage, resulting in less bullish market conditions compared to the previous week.
On January 9th, market participants noted a rapid shift in Bitcoin (BTC) values, ranging from $44,745 to $47,910 within half an hour as they scrambled to verify a possible endorsement of all spot BTC ETFs by the U.S. Securities and Exchange Commission (SEC), as seemingly suggested on a social media post. BTC price eventually leveled near $46,000 following the SEC Chair, Gary Gensler, refuting such news. However, this caused investors' concern that the incident may negatively influence the pending ETF decision due on January 10th.
Jesse Berger, the "Magic Internet Money" author explained via social media that the mistaken SEC post could potentially be utilized as a reason to delay the approval of the spot Bitcoin ETF. The ETF with the January 10th "deadline" is the ARK Invest 21Shares; contrastingly, other issuers, such as BlackRock, Bitwise, Fidelity, and VanEck anticipate their final decision not until March 15.
Senior Bloomberg ETF analysts, consequently, are reluctant to give approval odds exceeding 90%, considering the regulator might require additional time. James Seyffart from Bloomberg pointed towards other factors that could influence the decision, such as a theoretical SEC denial of the spot ETF, in spite of it appearing unlikely.
Hoeem, a writer for the "Seven c Newsletter," further asserts that this occurrence demonstrates how a single social media post can swing Bitcoin's price, a point that might be used as an argument against the ETF approval. Hoeem's theory is more likely than anticipated, especially regarding price fluctuations, considering Bitcoin's current struggle to maintain a $45,000 value — a 4.3% drop from the previous day's level of $47,000. Further, the Bitcoin futures premium has dropped to its lowest reading in three weeks, indicative of a decreasing demand from leverage longs (buyers).
Traders prefer monthly futures contracts due to the avoidance of a funding rate. However, information shows a decline to 12% on January 10th in the 2-month Bitcoin futures premium (basis rate), equalling its lowest point for the past three weeks. Despite remaining over the 10% baseline, the indicator reflects significantly less demand for leverage longs (buyers) compared to the January 2nd levels surpassing 20%.
The futures premium may have been influenced by the increased demand for hedging against the exposure to Grayscale GBTC fund. If Grayscale's spot ETF fund conversion attains approval by the SEC, shares trading at a discount since February 2021 may change as GBTC holders would finally be in a position to redeem shares at face value. This consequently presents an arbitrage opportunity with the potential for purchasing fund shares and selling the BTC futures equivalent to mitigate exposure.
The recent price correction has lead investors to reconsider their optimism, shown through the analysis of options markets. However, excessive positivity seems to have dwindled, following the unexpected volatility on January 9th. While it is bold to claim that the market approval odds have dipped below 80% based on Bitcoin derivative markets, it's fair to say it's less bullish in comparison to the previous week.
Published At
1/10/2024 9:11:38 PM
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