Bitcoin (BTC) experienced significant price fluctuations on January 9, ranging between $44,745 and $47,910 in less than 30 minutes. This volatility was triggered by a post on X (formerly Twitter) by the United States Securities and Exchange Commission (SEC) suggesting that all spot BTC exchange-traded funds (ETFs) had been approved. However, the price eventually stabilized around $46,000 after SEC Chair Gary Gensler denied the news. Nevertheless, investors grew skeptical about the chances of ETF approval by January 10 due to the impact of the SEC’s erroneous post.
Jesse Berger, the author of Magic Internet Money, suggested on X that the unauthorized post by the SEC could be used as an excuse to delay the spot Bitcoin ETF. It should be noted that the only ETF with a January 10 deadline is the ARK 21Shares Bitcoin ETF, while other issuers such as BlackRock, Bitwise, Fidelity, and VanEck are expecting a final decision by March 15. This difference in timelines explains why senior Bloomberg ETF analysts are unable to estimate approval odds above 90%, as the regulator may require additional time.
Bloomberg’s James Seyffart also highlighted other factors that could affect the spot ETF decision, including a potential denial by the SEC, although he believes this is unlikely. The negative outcome could be based on reasons other than the previously mentioned market manipulation risks, or it could even stem from a direct order from the administration of U.S. President Joe Biden.
Furthermore, the recent event involving the SEC’s post on a social network has raised concerns about the potential manipulation of Bitcoin’s price. This could be used as an argument to deny the ETF, although this scenario is not considered the base case.
The impact of these developments is evident in Bitcoin’s struggle to maintain a price of $45,000, representing a 4.3% decrease from the previous day’s level of $47,000. Additionally, the Bitcoin futures premium has reached its lowest point in three weeks, indicating decreased demand for leverage longs (buyers).
Data shows that the two-month Bitcoin futures premium has declined to 12% on January 10, matching its lowest level in three weeks. Although it remains above the 10% threshold, this decrease reflects a lower demand for leverage longs compared to the levels seen on January 2, which were above 20%. This suggests that approval odds for the spot Bitcoin ETF may not be as high as 80%.
The decline in the Bitcoin futures premium could be influenced by the increased demand to hedge exposure to the Grayscale Bitcoin Trust (GBTC) fund. These shares have been trading at a discount relative to their Bitcoin equivalent holdings since February 2021. However, if the SEC approves Grayscale’s spot ETF fund conversion, GBTC holders will be able to redeem their shares at face value. This creates an arbitrage opportunity for buying fund shares and selling the equivalent in BTC futures to hedge the exposure.
Traders should also consider analyzing options markets to gauge investor sentiment following the recent price correction. The 25% delta skew is an important indicator when arbitrage desks and market makers overcharge for upside or downside protection. Currently, the Bitcoin options delta 25% skew remains within the neutral range, although it is moving closer to the 7% threshold for bearish markets. This suggests that any excessive optimism has been diminished after the unexpected volatility on January 9.
In conclusion, while it may be premature to conclude that market approval odds have fallen below 80% based on Bitcoin derivatives markets, the sentiment is certainly less bullish compared to the previous week. It is important for readers to conduct their own research and exercise caution when making investment decisions, as every investment and trading move carries risks.