Understanding The Spot BTC ETF Dilemma
By Laxmikant Khanvilkar
Bitcoin prices have witnessed a rollercoaster ride in recent times. Often, the daily price swing would be as high as 6-7% or anything between $2,000 to $4,000 depending on the severity of factors influencing investor participation.
One key factor driving market has been the expectation of spot bitcoin (BTC) exchange traded fund (ETFs) approval from the U.S. Securities Exchanges Commission (SEC).
Against that backdrop, a news of code generation by leading news agency or exchanges preparing listing process would end up adding fuel to fire.
Several analysts have pegged Bitcoin price scaling above $50,000 mark. Some have gone even farther in their assumptions based on fund inflow prospect, calling for surge in prices to as high as $100,000 level. Standard Chartered sees bitcoin hitting $200,000 by year-end.
There’s one outlier among them who sees a drop in price irrespective of SEC approves or rejects ETF applications. A recent report by Matrixport’s head of Research and strategy and 10x Research’s founder Markus Thielen, suggested betting against consensus. The Singapore-based research firm expects bitcoin prices to fall in either case: SEC approving ETFs proposals or rejecting all.
Thielen expects Bitcoin prices to rise initially, once the ETFs are approved, but could still trigger a sell-off due to massive long position unwinding and profit-taking simultaneously. Also, he expects ETF linked fund inflow to lag expectations.
Holding long positions or leveraged bullish bets in the perpetual futures market tied to bitcoin became more expensive as bitcoin topped $45,000 mark. Thielen advised clients to book profit as the recent analysis indicated that the rally running out of steam.
Following the Matrixport report, Bitcoin fell -10%, while Futures Open interest declined by $1.2 billion (-12%), the funding rate dropped from +60% to just +4% (annualized), and volumes doubled from $68bn to $116bn for the crypto market
It is essential to note here that perpetual long position start to crumble under the weight of high funding rates and as the market stops moving higher. Consequently, markets experience unwinding of bullish bets and price pullback.
One factor that led the rally in bitcoin in late 2023, according to Thielen, was the constant minting of Tethers, which indicated $9 billion of fiat being moved into crypto.
Those flows, which fundamentally tend to support higher Bitcoin prices, have paused since early December, leaving the upside in the hands of overleveraged futures traders.
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