Will The Market Buy, Sell, Or Ignore A Bitcoin ETF Approval?
There are several different ways the market could react to a spot ETF approval.
A Bitcoin spot ETF has been the big narrative for this crypto cycle, with financial powerhouses such as BlackRock championing the cause. Of late, though, as the final decision date draws closer, and the approval of multiple ETFs appears almost certain, analysts and critics have been voicing differing opinions on the impact it might have on the market.
We look at three possible scenarios for approval and the time immediately following it.
The prevailing expectation has been that ETF approval would be bullish. After all, institutions that manage trillions of dollars are launching products, and its fair to expect tens or even hundreds of billions of that to find its way into bitcoin. Because these are spot ETFs, that money will be passed through to the underlying BTC market.
Bulls are fond of the example provided by gold, which went on a stellar, multi-year bull run after the first ETF was approved 20 years ago. Bitcoin has a smaller capitalization and a lower percentage of supply available for trading, thanks to diamond-handed HODLers and periodic halvings, so the argument is that the effect could be even more dramatic. Couple this with the marketing campaigns already launched by the issuers, even before approval, and there are certainly reasons for optimism.
Sell The News
In the opposite camp are those who believe that an ETF will not be bullish. Instead, the hype around it will provide a chance for large holders to offload coins. Markets are good at causing the maximum amount of pain to the maximum number of traders. With so many being so bullish, the path of max pain is down. In this scenario, approval would be a "sell the news" event.
Potentially the market would then recover, confounding the bears as well. Nonetheless, the short-term impact of approval could be devastating to BTC, claim the doomsayers.
As the "sell the news" narrative gains currency, a problem arises. If that is the dominant expectation, perhaps the path of max pain is actually up...
Lastly, what if approval is already priced in? Markets are forward-looking, and traders know that the SEC is almost certain to greenlight one or more ETFs.
Then there's the possibility that the new ETFs won't be popular. One argument against major inflows of new capital is that exchange-traded products have existed in non-US markets for a long time, as have futures ETFs. Moreover, Microstrategy essentially functions as a proxy for bitcoin. If a US financial institution wants exposure to BTC, buying MSTR provides that. Spot BTC ETFs don't really change anything.
With little mainstream interest in crypto, say the skeptics, adoption might largely be limited to current holders rotating funds into ETFs for various reasons (such as tax, security, and compliance). This scenario is neither immediately bullish not bearish, and it has some sense to it. Gold, again, provides a good road map for the short term.
While gold provides a possible analog for BTC ETF approval, it's not the same. For a start, we can't predict the level of hype that will be manufactured by BlackRock and other asset managers. Rising price functions as the best form of marketing, and becomes a virtuous cycle.
There's also the fact that interest rates were rising in the early 2000s, when the gold ETF was approved. At this point, they're already at their highs, and set to fall. Throw social media into the mix and the two eras are hardly comparable.
There is one certainty, and that is volatility. The market will do everything it can to shake out the weak hands and inflict pain on the majority. Be warned: Whatever happens, it's going to be choppy for a while.
Subscribe to our newsletter and follow us on X/Twitter.