Is BTC ETF a ‘Sell the News’ Event?

Posted on 18/01/2024 | 532 Views

The US Securities and Exchange Commission's (SEC) decision to approve ten new spot Bitcoin ETF products has set the stage for a dynamic and unpredictable year in cryptocurrency. Initial market responses were erratic, further intensified by a compromised SEC account that led to significant price fluctuations of Bitcoin. Following the ETF launch, Bitcoin's price rapidly climbed to nearly US$48.8k, only to experience a sharp -18% sell-off over a single weekend, sinking to a new low of $40.0k for the year.

These dramatic price shifts can be attributed to a mix of derivatives leverage and strategic profit-taking, especially notable as Long-Term Holders cashed in around 75,000 BTC amid the market's upheaval. These events underscore Bitcoin's growing impact on traditional finance, blending the world of cryptocurrencies with the established financial market, challenging and reshaping traditional financial practices and regulations.

The ongoing debate among Bitcoin investors centres around whether market events like halving’s, ETF launches, or significant dates are already factored into the price. Despite the recent rollercoaster of events, Bitcoin's year-to-date prices have remained relatively stable. This steady pricing suggests that the market may have already accurately accounted for these recent events.

As mentioned, a key aspect of the volatility seen recently can be attributed to the futures and options markets. Since mid-October, there has been a marked increase in open interest (OI) in these sectors. Specifically, Bitcoin Futures OI surged by $7.0 billion, an increase of 66%, though $1.1 billion of this was wiped out in the past week. Similarly, Bitcoin Options OI climbed by $6.6 billion, a 70% rise, with $2.3 billion being closed out due to contract expiration and positions being closed this week.

The current state of the market, with open interest for both futures and options nearing multi-year highs, indicates that leverage is not just elevated but also playing a more significant role in influencing market dynamics.

The Futures Open Interest (OI) Oscillator on the chart below serves as a pivotal tool for tracking rapid shifts in market leverage. This oscillator highlights key moments in the market by using color-coded values: red for high values representing an increase in OI by +2 standard deviations, and blue for low values indicating a decrease by -2 standard deviations.

One significant event, marked by the oscillator, was a substantial deleveraging on 3rd January, where nearly $1.5 billion of OI was eliminated in just a single day. Furthermore, the period between 9th and 11th January saw a notable uptick in OI, aligning with the peak of ETF speculation and Bitcoin's ascent towards $49k.

This increased OI, however, was short-lived and culminated in a weekend sell-off, plummeting prices down to around $40k. This tumultuous period introduced new ETF shareholders to the unique and constantly evolving 24/7 trading environment of Bitcoin.

Regardless of any data or technical analysis, the launch of new spot Bitcoin ETFs stands as a landmark achievement. This milestone, breaking new ground and culminating over a decade of persistent efforts in the industry, has been realised despite facing significant political, regulatory, and financial hurdles. It represents a monumental success story in the crypto industry's journey towards mainstream acceptance.

The response to the ETF launches has been intriguing, with on-chain and derivatives metrics pointing to a 'sell-the-news' reaction from a substantial segment of Bitcoin investors. This reaction underscores the intricate interplay between investor sentiment and market strategy, especially in anticipation of high-profile events.

Looking ahead, several questions loom large regarding the future impact of these ETFs, the much-anticipated Bitcoin halving in April, and the role of steadfast Bitcoin HODLers – who still refuse to sell. A critical area of focus remains whether these developments, individually and collectively, have the potential to navigate through the current market resistance. Additionally, while the immediate pricing impact of the ETFs might have been assimilated into the market, the sustainability and duration of this influence are yet to be determined. The future trajectory of the market will hinge significantly on how long the ETFs continue to shape price dynamics and market sentiment.

 

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