Spot Bitcoin ETF Approval Has 75% Probability of Sell-the-News Event, K33 Research

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Spot Bitcoin ETF Approval Has 75% Probability of Sell-the-News Event, K33 Research – Crypto News

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2 years ago

January 3, 2024

Dripp

The approval of the first spot Bitcoin ETF is just around a week’s time with BlackRock and other big players making a push for the same. While the Bitcoin price made a strong move above $450,000 earlier this week, there’s a strong debate within the crypto community that the ETF approval could be a sell-the-news event.

Selling Pressure After Bitcoin ETF Approval?

K33 Research predicts a decision on Bitcoin spot ETFs between January 8 and January 10, with the possibility of market-moving news breaking earlier. Senior Analyst Vetle Lunde anticipates that, regardless of the timing, approvals are likely to trigger a sell-the-news event.

Lunde notes that traders appear significantly exposed ahead of the verdict, with derivatives showing substantial premiums after Bitcoin’s sustained upward momentum in the last three months. The sell-the-news scenario, according to Lunde, could become a self-fulfilling prophecy as many short-term market participants eye the event for profit-taking.

Lunde assigns a 75% probability to the sell-the-news scenario, a 20% chance of approval, and a 5% possibility of ETF denial, even with recent positive signals from meetings and updated S-1 prospectuses with the Securities and Exchange Commission.

Excessive Froth In the Market

The analyst highlighted indications of market froth, citing a surge in futures premiums on the Chicago Mercantile Exchange, reaching annualized levels of 50%. Institutional participants, anticipating approval, have been increasing their long exposure. The premium represents the difference between the spot price and the futures price of an asset.

Open interest has seen a growth of over 50,000 BTC in the past three months, likely driven by the anticipation of spot Bitcoin ETF approvals. “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,” he said.

On the retail side, funding rates on offshore exchanges have reached extremes, hitting an annualized high of 72% during Bitcoin’s recent overnight rally. He added:

“Shorts are reluctant to enter the market with the ETF verdict one week away, increasing perp premiums to the spot market and making longs expensive to maintain. Aggressive leverage from longs may set up the market for long squeezes following the ETF verdict.”