A decision on the Bitcoin spot ETF is expected to be made between January 8 and January 10, according to K33 Research, but market-moving news could come earlier than that. Nonetheless, senior analyst Vetle Lunde expects the approval to be a news-selling event. Or at least this is the most likely scenario.
“Everything points to traders being significantly exposed ahead of the ruling and derivatives commanding huge premiums. BTC
+5.86%
There has been continued upward momentum over the past three months,” Lunde wrote. report. “News selling events can become self-fulfilling prophecies because a significant portion of short-term market participants are eyeing those events as profit-taking areas.”
Lunde set the odds of a sell-news scenario at 75% versus a 20% chance of acceptance, after which significant inflows offset selling pressure from short-term traders and boosted prices. While a recent meeting between the filer and the Securities and Exchange Commission and an updated S-1 prospectus suggest approval is imminent, Lunde suggested there is still a 5% chance the ETF will be rejected.
crowded transaction
Analysts noted signs of a froth in the market, with futures premiums on the Chicago Mercantile Exchange surging to an annualized level of 50% as institutional participants continue to build long positions, signaling their expectations of approval. Premium is the difference between the spot price and the futures price of an asset.
CME annualizes BTC premium. Image: K33 Research.
Open interest has increased by more than 50,000 BTC over the past three months, possibly driven by the approval of the leading Bitcoin spot ETF, Lunde added. “Maintaining CME exposure at current premiums requires a rolling cost of 1-2% per month. This is an acceptable carryover cost in the medium term ahead of a pivotal event, but unsustainable in the long term. This is especially true as cheaper exposure alternatives emerge. “He said.
In the retail sector, with Bitcoin’s recent overnight rise, funding rates on offshore exchanges are reaching extremes, hitting an annual high of 72%. “Short sellers are reluctant to enter the market with the ETF ruling just a week away, which increases puff premiums to spot markets and makes buying and holding more expensive,” K33 Research said. “Aggressive leverage of short positions could set the market for a long squeeze following the ETF ruling.”
Binance BTC/USDT funding rate. Image: K33 Research.
Bitcoin has risen more than 5% in the past 24 hours, surpassing $45,000, as expectations for approval of a U.S. spot ETF rise. Bitcoin is currently trading at $45,269, according to price data from The Block.
BTC/USD price chart. Image: Block/TradingView.
down before going up again
Lunde said the Bitcoin spot ETF “has definitely had a front run, but whether that is too much or too little will depend on the flow after the product launch.” While inflows from “inferior” instruments such as futures-based ETFs are likely, the “important factor” will be net inflows of new funds, which should be at least 50,000 BTC ($2.3 billion) in January, Lunde added.
Lunde expects the current Bitcoin price rise to peak on the ETF ruling date due to significant profit taking by short-term traders and unsustainable premiums. But over the long term, analysts believe money flowing through potential spot ETFs, combined with the supply shock from April’s Bitcoin halving event, will enjoy favorable compounding as the year progresses.
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