Is a bitcoin ETF approval priced in? In the short term, probably

Bitcoin has gained as much as 8.7% this week on optimism that the SEC will rule favorably on a spot bitcoin ETF. The cryptocurrency faltered slightly on Tuesday however, losing around 0.7%. Analysts say it could be a sign that the ETF news is priced in, at least in the short term.

“Given the lack of stronger moves upward as goalposts were passed over the past few days, and given signs of jitteriness with the sharp drop last week and this morning’s wick lower, it could be that the market is already discounting SEC approval, and is primed for an excuse to sell,” Noelle Acheson, author of the ‘Crypto is Macro Now’ newsletter, said.

Should spot bitcoin ETFs get the green light, there is a wide range of estimates for initial inflows, Acheson said she’s heard predictions from $2 billion to $5 billion.

“Surely that is material to the price outcome?” she added. “There’s a lot of uncertainty here.”

Roshun Patel, partner at Hack VC, agreed, adding that it’s nearly impossible to completely price in the potential structural changes and flows that a bitcoin ETF could bring.

“Short term though, could you see some rotation back from BTC into ETH and the ‘next ETF’ narrative once [a bitcoin ETF] is live? Sure, but over more investable time horizons, the impact it has on flows is hard to know down to the dollar today,” Patel said. “It can really only surprise to the upside. Dollars are infinite after all.”

The SEC owes Ark and 21Shares an answer on their bitcoin ETF application Wednesday. If they – and any of the other eleven issuers in the game – get the green light, analysts say the product could start trading as soon as the next day.

Bitcoin’s small dip Tuesday didn’t impact its year-to-date gains much. It’s still up about 10% since the New Year. Ether (ETH) lost around 3% Tuesday, putting it about 0.8% lower year to date.

The Nasdaq Composite and S&P 500 indexes were fairly flat Tuesday afternoon, erasing losses from earlier in the trading session.

Monday saw the S&P 500 hit a new 2024 high, helping inch into the green for year-to-date returns. The index is now 0.2% higher since the start of the year. The tech-heavy Nasdaq Composite is fairly flat over the year after losing 2.5% last week.

Analysts say the key market-movers for equities have not changed much from the factors that drove stocks higher at the end of 2023.

“Unlike the past several years, there aren’t a lot of influences on stocks and bonds right now, as there are really just three macro influences driving markets: Fed policy expectations, economic growth…and inflation,” Tom Essaye, founder of Sevens Report Research, said.

Traders are still betting on a soft landing and the rate cut cycle starting in March. It’s an ambitious bet, Essaye said.

“Bottom line, how the facts begin to play out in the new year compared to these expectations will ultimately decide whether markets hold and digest the Q4 gains or give them back (and possibly more) as reality may not match these optimistic assumptions,” he added.

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