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Bitcoin ETF Hype Priced In? Why Did BTC Not Rise More on Approval News?

Last Updated January 11, 2024 1:24 PM
James Morales
Last Updated January 11, 2024 1:24 PM

Key Takeaways

  • News that the SEC has approved the listing of spot Bitcoin ETFs triggered an increase in the cryptocurrency’s price.
  • Price gains were underwhelming compared to past rallies, however.
  • Bitcoin’s strong performance in recent months suggests approval was already priced in.

When the SEC announced the approval of 11 spot Bitcoin Exchange Traded Fund (ETF) applications on Wednesday, January 10, the price of BTC jumped around 5%. It rose from $45,300 to $47,600, but a partial retreat followed the initial spike. After that, the market settled into a fairly mundane pattern during overnight trading. 

Although Bitcoin’s price movement following the SEC’s announcement hasn’t been bad per se, after so much buildup, the lukewarm response felt anticlimactic. In the past, even the slightest hint of good news has generated an explosive reaction from the market. So, why didn’t it this time?

Bitcoin Price Already Adjusted for ETFs Pre-Approval 

Traders’ subdued response to Wednesday’s Bitcoin ETF news suggests the market had already priced in the SEC’s decision in advance of an official announcement. 

After a D.C. Court of Appeals issued its final ruling in a dispute between the SEC and Grayscale in October, the ultimate approval of spot Bitcoin ETFs appeared all but inevitable

Of course, there was always the chance the SEC would buck expectations and deny or delay their decision. Nevertheless, in the weeks following Grayscale’s victory over the SEC, analysts and investors became increasingly confident the regulator’s hands were tied by the court’s decision. 

Even before the Grayscale decision was finalized, influential Bloomberg analysts James Seyffart and Erich Balchanus had placed the odds of approval by January 10 at 90%.

Amid rising confidence that the SEC would give Bitcoin ETFs the go-ahead, the price of Bitcoin surged throughout the fall, climbing from below $30,000 to over $40,000 by December as the regulator met with BlackRock and other ETF hopefuls to discuss the finer details of their applications. 

ETF Rejection: the Black Swan that Never Was

Given the market’s expectation of SEC approval, had the regulator rejected the proposals it could have instigated a crash in the price of Bitcoin. 

A week before the final deadline, Matrixport’s Head of Research, Markus Thielen, issued a rare dissenting analysis . He predicted – wrongly, as it turns out – that the SEC would reject Bitcoin ETF proposals in January. Thielen estimated traders had bet up to $10 billion on approval, accounting for the majority of long Bitcoin futures positions. As a result, Thielen observed that a negative decision from the SEC could trigger cascading liquidations. This would have led “very quickly” to a 20% decline in the BTC market. Had that happened, he said the crypto would have fallen back to the $36,000 to $38,000 range.

Even though his prediction proved to be wrong, Thielen’s warning remains relevant. After all, a major leverage flush may still be on the cards. One way or another, overheated markets almost always collapse. If ETF hype gets ahead of actual investment in the new funds, a rally could be followed by a swift retraction.

What Next for BTC Market Post-ETF Approval?

If the pattern of previous price cycles is repeated, a generally bullish wind will Bitcoin to new heights before it peaks in mid to late 2025. But that doesn’t mean there won’t be some bumps along the road. 

 BitMEX co-founder Arthur Hayes said  he expects the cryptocurrency to continue rising in value until the end of February. In March, he says it could experience a significant pullback in March.

Key variables identified by Hayes that could drive the price of Bitcoin up or down include whether or not the US government renews a funding program introduced last year to prop up struggling banks. 

Hayes thinks the government will wind down the bank funding scheme. As a result, he anticipates BTC declining sharply in line with broader financial markets. With a decision expected on March 12, the cryptocurrency will experience “a healthy 20% to 30% correction” from its price in early March, possibly falling as much as 40% if the starting point is over $60,000

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