As the cryptocurrency market anxiously awaits the decision on Bitcoin spot ETFs (Exchange-Traded Funds), scheduled to take place between January 8th and 10th, speculation and expectations are shaping market behavior.
As analyzed from K33 Research, although market movement is imminent, senior analyst Vetle Lunde anticipates that the approval of Bitcoin spot ETFs could trigger a news sell-off phenomenon. Lunde points out that given the continued upward momentum of the last three months, traders are significantly exposed, with derivatives generating massive premiums.
“A news sell-off event can become a self-fulfilling prophecy, as a significant portion of short-term market participants view the event as an area for profit-taking,” said Lunde. He estimates there is a 75% chance of a news sell-off event occurring, contrasting with a 20% probability of ETF approval, followed by significant inflows that could offset selling pressure from short-term traders and drive prices higher. . There is still a small possibility, around 5%, that ETFs will be denied.
Lunde also highlighted a kind of “crowded commerce” in the market. He noted an increase in futures premiums, especially on the Chicago Mercantile Exchange, where they reached annualized levels of 50%. This indicates that institutional participants anticipate approval and are increasing their long exposure. The premium is the difference between an asset's spot price and its futures price. Open interest has grown by more than 50.000 BTC in the last three months, possibly influenced by the expectation of approval of Bitcoin spot ETFs.
In retail, funding rates on offshore exchanges also reached extremes, marking an annualized increase of 72%. “Short positions are reluctant to enter the market with the ETF verdict a week away, increasing perp premiums for the spot market and making long positions expensive to hold,” K33 Research explained. This suggests that aggressive long leverage could prime the market for significant adjustments following the ETF decision.
Lunde considers bitcoin spot ETFs to be pioneers in the market, but notes that the real impact will depend on flows after the products launch. He emphasizes the need for a net inflow of new money, estimating an amount of at least 50.000 BTC (approximately $2,3 billion) in January.
At the time of publication, the BTC price it was quoted at US$ 45.163,76, up 5% in the last 24 hours.
Buy on the rumor, sell on the news?
Buy on the rumor, sell on the news” is a popular expression in the financial market that describes a commonly observed trading strategy. It is based on the behavior of investors who act based on anticipations and expectations, rather than reactions to concrete events.
Buy on Rumor: This part of the saying refers to the practice of buying assets when there are rumors or expectations of a positive event that could boost their value. For example, in the context of Bitcoin spot ETFs, if they are rumored to be approved, investors may start buying Bitcoin early, hoping that the approval will lead to an increase in price.
Sell on the news: After the expected event happens and becomes news, many investors sell their assets. This may seem counterintuitive, but the logic behind it is that once the event happens, it is already “priced” in the value of the asset – that is, the impact of the news is already reflected in the current price. Thus, investors sell to take profits before the price potentially falls, as the expectation that drove the price upward has already been satisfied.
In the case of Bitcoin and spot ETFs, if approval is announced and is already anticipated by the market, a significant sell-off could be seen as traders take profits, following the “sell on the news” philosophy.
It is important to note that this strategy involves a significant degree of risk, as it is based on rumors and expectations, which may not come to fruition. Furthermore, the market's reaction to news can be unpredictable, and does not always follow the logic of “buy on the rumor, sell on the news”.
