As we approach the New Year, all eyes shift to the U.S. spot Bitcoin ETF decision. How will it affect the market, and importantly, how should you play the announcement? I dive into how to play the spot Bitcoin ETF decision ahead of one of the biggest catalysts the industry has seen.
Key Takeaways
- The SEC’s deadline to decide on the first Spot Bitcoin application is due on January 10.
- Bloomberg ETF analysts expect a 90% chance of an approval.
- The best course of action could be not to overcomplicate things or ‘time’ the ETF trade but instead continually DCA into Bitcoin—it could be a rare ‘Buy the News’ event.
- The effects of the ETF approval could take a while to play out.
- In the event of rejection or a ‘sell the news’ market sell-off, it could make an opportune buying opportunity.
Contents
ETF Decision Looms
One of the biggest ever Bitcoin catalysts is quickly approaching, with the SEC’s deadline for deciding on the Bitcoin spot ETF application by Ark and 21Shares due January 10. According to Bloomberg ETF analyst James Seyffart, it will likely come on January 8th, 9th or 10th, making the second week of January a must-watch.
It cannot be delayed further—the SEC must approve or deny the request.
Things are ramping up ahead of the deadline, with a host of activity from big names such as BlackRock and Fidelity continuing to meet with the SEC. Also, as per Reuters, the SEC has told Bitcoin ETF hopefuls they have until year-end to make any final changes.
For more on the changing tide, see our latest recap in last week’s newsletter👇
Read: The Bitcoin ETF Tide Is Turning – Key Dates To Follow
To Buy, Hold or Sell?
The number one question on everyone’s lips remains: How do we play the ETF decision announcement? Should I sell? Should I buy? Or should I do nothing?
Of course, we cannot give any crystal ball predictions or financial advice, but I can provide some context, different ways to think about it and my plan of attack.
For more scenarios and the impact on how it may play out, see my previous post below.
Read: What The Bitcoin ETF Actually Means
In case of a sell-off
Let’s start with a potential sell-off. I am seeing substantial concern the event may be a “sell the news event”.
CME—widely regarded as a gauge to measure institutional activity—hit an all-time high in Bitcoin open interest. The argument goes that more than $3B of capital from traditional finance has front-run the ETF announcement and could look to derisk after the approval.
Another event that could spell a sell-off is the slim chance we see a rejection. If we see a rejection, I would be shocked if Bitcoin does not sell off substantially.
If we see either a (i) sell-off driven by a “sell the news event” or (ii) rejection that leads to a Bitcoin sell-off, I’ll be positioning myself as a buyer and continue to accumulate Bitcoin.
Why I’m not doing much
As discussed above, I’m seeing both statistically and anodically a lot of the market is expecting a sell-off driven by a sell-the-news event.
I believe this is wrong, and we could see the opposite.
My initial feeling is it’s best not to overcomplicate it and continue my plan to DCA into Bitcoin.
I’m very long-term aligned, and I believe that with the number of Bitcoin catalysts over the next few years, the difference between $25,000 and $50,000 Bitcoin may be negligible.
I share a similar outlook to Dan Morehead, the founder of Pantera Capital (one of the oldest crypto hedge funds), that the event could very well be a rare “buy the rumour, buy the news” event.
The reasoning? The event considerably changes the underlying demand drivers for Bitcoin, which past events (e.g. Bitcoin futures launch, Coinbase’s direct listing) never did. Essentially, the ETFs could be transformative for Bitcoin like they were for gold.
To dive deeper, see Pantera Capital’s blog post.
In short, spot Bitcoin ETFs change the dynamics in a few ways:
- Legitimises Bitcoin
- It makes it easier than ever to hold Bitcoin
- Allows exposure via traditional trusted parties
- It starts the ETF landgrab
Expect Super Bowl ads, Google ads and major ad campaigns—some have already been shared. The land grab will be real.
Impact
As a result, I’m expecting the ETF to bring substantial demand to BTC. However, whether it is the low or high end of the predictions, the real impact could take a while to play out.
This expectation is also shared via prospective ETF issuer Bitwise, who, in its year-ahead report, predicted that “1 in 4 financial advisors will allocate to crypto in client accounts by the end of 2024.”
This is ambitious, but directionally, I tend to agree.
The case for caution
I would be concerned about trying to “time” the ETF decision.
If you’re not an experienced trader and think of using leverage to make a profitable trade, it might be wise to think twice. Leverage can be disastrous and, if not used correctly, can undo years of hard work.
I’m expecting fireworks, approval or decline, but so is every man and his dog. Making trading the decision very difficult.
Final Thoughts—Looking Beyond An Approval
If we see widespread approvals in early January, then attention could be turned to other digital assets.
Ethereum was granted a futures ETF in the U.S. this year, and many asset managers have already started the process to either convert or lodge new ETFs (Bitwise, Ark Invest, Grayscale).
Will attention turn to ETH next? After all, the SEC pushed back its decision on several ETH ETFs until May 2024.
Outside of ETH, watching which other cryptocurrencies may be in line for an ETF will be important. It would act as a strong signal hinting which ETFs have high demand and which cryptocurrencies large institutions are comfortable around or have staying power.