Bitcoin ETF decision looms. Expect more volatility ahead.
By Frances Yue
Happy New Year and welcome back to Distributed Ledger. This is Frances Yue, crypto and markets reporter at MarketWatch.
Bitcoin has had an especially volatile start of 2024. The crypto (BTCUSD) on Tuesday rose above $45,000 to the highest level since April 2022, but then tumbled up to 9% on Wednesday to as low as $40,838, according to CoinDesk data.
The drastic moves happened days ahead of a major deadline by which the U.S. Securities and Exchange Commission will make a decision on whether to approve exchange-traded funds investing directly in bitcoin.
The agency faces a Jan. 10 deadline to determine whether to approve the spot bitcoin application filed by Ark Investment and 21Shares. While the market consensus is that the SEC will approve the ETF and other similar products by such date, some disagree.
For instance, Matrixport’s Markus Thielen wrote in a Tuesday note that he expects the SEC to decline all bitcoin ETF applications this month, as the applications may fall short of requirements that must be met. Some blamed the report for triggering bitcoin’s price decline on Wednesday.
I caught up with Austin Reid, global head of business at FalconX, a crypto brokerage serving institutions, to talk about bitcoin’s recent volatility and how traders have been positioning for SEC’s ETF decision.
More volatility ahead?
Bitcoin’s decline on Wednesday was mostly driven by leveraged liquidations, Reid said. “I don’t think it’s necessarily a reflection of anything changing on a fundamental basis in relation to the ETF approval prospects,” Reid said in a call.
“From our perspective, we still think a (bitcoin) ETF is more likely than not going to be approved, and we’re seeing most sophisticated market participants continue with that perspective, independent of some of the short term movements.”
Still, Reid said he has seen increased market activity for the past few weeks, as crypto traders position themselves for the ETF decision.
The bitcoin options market is currently pricing in a 10% move for the crypto in one direction or another next week, Reid noted.
Even if a bitcoin ETF is approved, there could still be volatility ahead.
For now, the crypto market is pricing in roughly $1 billion to $2 billion initial inflows into bitcoin ETFs, Reid said, citing FalconX’s research. If the inflows ends up significantly below the range, bitcoin could tumble and vice versa.
Crypto in a snap
Bitcoin edged 0.1% lower in the past seven days and traded at around $42,700 on Wednesday, according to CoinDesk data. Ether (ETHUSD) rose 2.5% during the same period, to about $2,200.
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-Frances Yue
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01-03-24 1612ET
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