In the ever-evolving landscape of cryptocurrency, all eyes are on the imminent decision regarding Bitcoin spot exchange-traded funds (ETFs), with expectations set between January 8 and January 10. However, market insiders suggest that significant developments might surface even before the official announcement, according to insights from K33 Research.
Bitcoin ETF Decision Sparks Sell Concerns
Senior Analyst Vetle Lunde anticipates that, irrespective of the verdict, approvals are likely to trigger a sell-the-news event. Lunde pointed out the precarious position of traders, with derivatives showing substantial premiums following Bitcoin’s three months of continuous upward momentum.
Lunde emphasized in a recent report, “A sell-the-news event could become a self-fulfilling prophecy as a significant share of short-term market participants has eyeballed the event as an area for profit-taking.”
The prevailing sentiment, as assessed by Lunde, indicates a 75% likelihood of a sell-the-news scenario, compared to a 20% chance of approval. Lunde also noted a 5% probability of the ETFs being denied, underscoring the uncertainty that still surrounds the market.
One indicator of potential froth in the market is the surge in futures premiums to annualized levels of 50% on the Chicago Mercantile Exchange, as institutional players express confidence in approval by increasing their long exposure. Open interest has also seen a notable increase of over 50,000 BTC in the past three months, attributed to anticipation of Bitcoin spot ETF approvals.
Lunde commented, “At current premiums, maintaining CME exposure involves a 1-2% rolling cost each and every month an acceptable cost of carry over a medium-term horizon ahead of a pivotal event but unsustainable in the long term, particularly as cheaper exposure alternatives arise.”
On the retail side, funding rates on offshore exchanges have reached extremes, hitting an annualized high of 72% during Bitcoin’s recent overnight rally. K33 Research suggests that shorts are hesitant to enter the market with the ETF verdict looming, potentially setting the stage for long squeezes post-announcement.
Bitcoin Hits $45K Ahead of ETF Decision
Bitcoin, in response to the increasing anticipation of U.S. spot ETF approval, surged more than 7% in the last week, breaking past the $45,000 mark. The current value of Bitcoin stands at $45,058, accompanied by a 24-hour trading volume of $36.54B, a market capitalization of $882.60B. Over the past 24 hours, the price of BTC has experienced a decrease of 1.21%.
While Lunde acknowledges that Bitcoin spot ETFs have been front-run, the extent of this front-running will only become clear after the products launch. Lunde emphasized the importance of net inflow of new money, expecting at least 50,000 BTC (equivalent to $2.3 billion) in January.
Lunde forecasts that the ongoing Bitcoin price rally might peak on the ETF verdict date due to profit-taking by shorter-term traders and unsustainable premiums. However, looking ahead, the analyst envisions a positive outlook as money flows through potential spot ETFs, combined with the supply shock from the Bitcoin halving event in April, creating favorable conditions as the year progresses.
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