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DDD-Day: Bitcoin ETF Is Approved

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2024-01-11
DDD-Day: Bitcoin ETF Is Approved

Finally - Decision Day, Dropping-The-News Day, Deliverance Day, use any D word you may want to, and join the celebration! Because, as Commissioner Hester M. Peirce of the Securities and Exchange Commission (SEC) said: 'Out, Damned Spot! Out, I Say '.

The Prelude

Prior to the official news, SEC Chair Gary Gensler had turned to X (formerly Twitter) to publish his warnings on crypto investments: a thread on Monday (January 08) which highlights the volatility, lack of compliance and loads of 'fraudsters' and a reminder of the many risks that come with crypto on Tuesday (January 09) . The crypto community, of course, sneered at another series of crypto bashing from him. But if we take a moment to really think about it, persistent warnings right before the SEC's deadline on spot Bitcoin ETF applications could indeed be seen as hints from Gensler himself on the approval, right? That's not to mention the SEC serving as a classic example of 'secure your accounts/protect your identity ' on the same day after their official account on X got compromised and fake news on the spot Bitcoin ETF approval was posted there. Gensler 'warned' us, but most of us were too busy criticising him to realise his true intention, weren't we?

Everything on the SEC incident is covered here: SEC's Comedy of Errors: The Hilarious Fake Bitcoin ETF Approval

It would be a serious mistake to not talk about the fee war between spot Bitcoin ETF issuers as the approval was impending: BlackRock reduced the initial fee of 0.30% to 0.25%, 21Shares & Ark from 0.25% to 0.21%, Bitwise from 0.24% to 0.20%, WisdomTree from 0.50% to 0.30%, Invesco & Galaxy Digital from 0.59% to 0.39%, Valkyrie from 0.8% to 0.49%, and Fidelity from 0.39% to 0.25%. These issuers also offer even lower, but conditional fees. For example, BlackRock charges only 0.12% in the first year or for the first US$5 billion in AUM, and 21Shares & Ark will implement a fee waiver for the first 6 months or the first US$1 billion in AUM, whichever comes first.

Does It Mean Futures Bitcoin ETFs Are Whacked?

Less discussed but we've seen the question popping up every now and then in crypto convos across platforms. The biggest Bitcoin ETF in the U.S. as of today (January 11) is ProShares Bitcoin Strategy ETF with US$1.7 billion in AUM , which is a futures-based Bitcoin ETF. The biggest difference between a futures Bitcoin ETF and a spot ETF is the ownership of assets - a spot ETF engages in the purchases and management activities of actual Bitcoin, while a futures ETF simply provides investors with exposure to Bitcoin futures contracts on CME. Each type has its pros and cons, and just like how spot and futures markets for all assets have and will still coexist for diversification and hedging purposes, we expect futures ETFs to be hanging around to satisfy different risk appetites as well as investment needs.

As explained here , the greatest impacts of these approvals mean more capital flowing into crypto and proper recognition of crypto by U.S. authorities (finance and regulation-wise), who until recently stayed aggressive towards the whole space. We will soon provide summary on spot Bitcoin ETFs performance in the Bitget Hot Takes series in the upcoming weeks as another indicator of institutions' sentiment.

Check out the Bitget Hot Takes series here: Bitget Academy [Market Updates]

Lukewarm Water

Logically, an average investor would expect Bitcoin price to jump immediately after the news. But does it really?

Check out the good ol' saying: 'Buy the rumour, sell the news'. It means prices will often move upwards in anticipation of good news ahead, but not necessarily afterwards. In the case of Bitcoin, we can look for some cues in Bitcoin futures and options markets, as they are widely used for speculating on spot prices without all the hassles of setting up a crypto wallet and onboarding crypto spot trading.

As shown below in the BTC Funding Rate History Chart, the funding rate over the period from December 25, 2023 up to today (January 11, 2023) has seen a significant decrease since the New Year and even experienced red on OKX. Funding rate is the unique indicator of crypto perpetual futures (futures with no expiry), which is finalised after every 8 hours to keep perps' prices close to spot prices. Positive funding rates mean more long contract holders are willing to pay shortsellers a.k.a. bullish sentiment and vice versa. Looking at the green columns in the chart, it's clear that the level of bullish-ness, i.e. column height, is relatively low going into 2024. It doesn't necessarily mean the majority of investors doesn't appreciate the spot Bitcoin ETF approval in the U.S.; it's more of a signal for more volatility to come in the next few days, at least until after some have 'sold the news'.

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Source: Coinglass Crypto Funding Rate

Upon checking the max pain price of options on Deribit - currently the largest option market in the space, we are more convinced of forthcoming fluctuations: max pain of 240110 is 46000, 45750 for 240111, 44500 for 240112, 46000 for 240113, 45000 for 240119, 40000 for 240126. Max pain price is the strike price at which most option holders will experience losses at the expiry, and max pains of all options that expire in January are suggesting erratic movements. This is roughly 12 hours after the news came out, investors in the U.S. and Canada have either placed or adjusted their positions and those in Asia have also responded. Only our European peers are yet to begin the day, therefore these numbers are pretty accurate.

Bitcoin high of the day is currently US$47,647 and even approached US$48K on Bitget Spot Trading , but this trend is negated as it immediately moved back inside the Bollinger Bands. In the long term, yes, Bitcoin will soar, but be cautious with your orders at the moment as volatility risk is very, very real.

One thing worth mentioning is that Ethereum has crossed US$2,300 and is now trading around US$2,500 , and we have every reason to believe that is the instant effect of the spot Bitcoin ETF approval. Yet the magnitude of change for Ethereum and Bitcoin is not on par with each other since their prices are determined by different factors. Spot Bitcoin ETFs are paving the way for spot Ethereum ETFs, but Bitcoin price changes are also influenced by the fourth Bitcoin halving event on April this year, and Ethereum possibly by Vitalik's suggestion to increase gas limit on the blockchain for better throughput last night on Reddit . The opening prices of Jan 11 even illustrate a drop in the correlation between Bitcoin and Ethereum, which could serve as a prediction for the time lag between rises in the two largest crypto's prices.

DDD-Day: Bitcoin ETF Is Approved image 1

Thanks to Bitcoin's dominance on the global crypto market, all cryptocurrencies will benefit from an increase in its value, which is a direct result of institutional adoption. The key factor to map out your investment strategy, however, remains diversification and refrain from emotional trading.

And The Next Bitcoin Halving Is Just Around The Corner

Although Bitcoin prices sure need some time to take a breath, the upward momentum is actually building: we have just gotten out of the shortest bear market in the history of crypto and there are less than 15,000 blocks until the next Bitcoin halving - another promise to send Bitcoin prices to the moon . 2024 is off to a great start, and our only 'threat' is Jim wondering if Bitcoin has reached the top ..

Disclaimer: The opinions expressed in this article are for informational purposes only. This article does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice. Qualified professionals should be consulted prior to making financial decisions.