Was the price action on the fake bitcoin ETF news a sign of things to come?
While spot bitcoin ETF approval optimism has grown recently, industry watchers say Monday’s price spike showed such an event is not yet fully priced in
Travis Wolfe/Shutterstock modified by Blockworks
A false report of spot bitcoin ETF approval gave a taste of the sort of price action bitcoin could see if and when the real thing happens.
Genuine approvals by the US Securities and Exchange Commission could spur much larger price increases, market observers told Blockworks, as the media mistake was evidence such an event is not yet fully priced in.
A report that the SEC greenlit a spot bitcoin ETF proposal by BlackRock — which Cointelegraph later acknowledged was incorrect — resulted in bitcoin’s price jumping in minutes by roughly 7% to about $30,000.
Bitcoin’s (BTC) price went back down after confirmation the SEC had not in fact approved the product. It stood at $28,375 at 3 pm ET Tuesday — down 0.6% in the last 24 hours.
“We got an early glimpse of the positive sentiment and powerful demand that such a product will create across the board,” said Jeff Embry, managing partner at crypto hedge fund Globe 3 Capital. “It also showed that market participants and traders have their finger on the trading button and that there is a pent-up demand for good news on the crypto front.”
Globe 3 Capital had forecasted at the beginning of 2023 that BTC’s price could reach $42,000 by the end of the year. That level would be attainable “within a short period” after a spot bitcoin ETF is approved, Embry added.
“You will see demand for this easily accessible ETF bitcoin product from the individual retail, retirement accounts and institutional — and most likely corporate treasury departments,” he said.
LMAX Group market strategist Joel Kruger, who noted such a product will help usher in “mass institutional adoption,” expects an even larger spike than to $42,000.
“Given bitcoin’s scarcity, we expect this will translate to a rally that over the course of a few months pushes back towards a retest and break of the record high,” Kruger told Blockworks.
Bitcoin reached an all-time high of about $69,000 in November 2021.
Matteo Greco, a research analyst at Fineqia International, said in the hour following the false report, more than $100 million in liquidations — or forced closure of a trading position — occurred. Roughly $70 million of these liquidations occurred in short positions, while $30 million were in long positions.
“An approval would represent a massive inflow from [traditional finance], and as we saw yesterday, the event of an approval is not priced in by the market yet,” Greco added.
The price spike from the false report came a couple days after the SEC’s window to appeal a court victory by Grayscale Investments expired. The regulator chose not to challenge the August ruling, in which judges decided the SEC blocking the conversion of the Grayscale Bitcoin Trust (GBTC) to an ETF — but allowing bitcoin futures ETFs to trade — was “arbitrary and capricious.”
Grayscale has said “GBTC remains operationally ready to convert to an ETF upon appropriate regulatory approvals.”
“We believe the Grayscale court win is not currently priced in either,” Embry said. “Due to all the confusion created by the SEC most investors are in a ‘we’ll believe it when we finally see it’ mindset.”
The SEC is set to rule on a planned bitcoin ETF by Ark Invest and 21Shares by Jan. 10. It can take until March to decide on similar products by BlackRock, Fidelity and others, though many expect a decision on a bunch of proposed bitcoin ETFs to come at the same time.
GBTC shares — which trade on the secondary market at a discount or premium — had a discount of 14.77% on Monday, according to YCharts.com. This is down from a discount of more than 40% a few months ago.
“This shows that investors do anticipate an ETF approval eventually and the Grayscale court win was a huge step in the right direction,” Embry said. “That is a great indication that some of the pricing power is priced in, but there is plenty more to go.”
Greco noted that GBTC conversion to an ETF would give a long-awaited opportunity to sell for many shareholders, which could mitigate the short-term effect of an approval.
He added: “It is safe to say, anyway, that an approval would cause massive inflow of capital and volume in a matter of weeks after the launch of the products.”
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