People familiar with trading jargon would know what “Buy the rumor, Sell the news” means - for those, who have no idea what I am talking about, let me explain. It is a trading strategy where investors buy an asset based on rumors or speculative information and then sell it when the anticipated news or event is officially announced. The idea is to take advantage of the price movement that often occurs before and after significant events.
We saw this play out perfectly before the anticipated Bitcoin ETF approval. The premier digital currency had been soaring for months leading up to the BTC ETF approval last week - touching $49,000 as the watershed moment arrived for Bitcoin and the associated cryptos. But as soon as the U.S Securities and Exchange Commission (SEC) gave the green light to 11 BTC ETFs (Figure 1), the price of Bitcoin started to falter.
Bitcoin (BTC) experienced a more than 15% decline following the debut of spot exchange-traded funds (ETFs) last week. During this period, several billion dollars have been withdrawn from Grayscale's GBTC. Some of these outflows can be attributed to investors shifting to lower-fee ETFs and others capitalizing on the substantial price increase in GBTC (and Bitcoin).
However, a portion of the funds may also be attributed to traders exiting a potentially lucrative speculation that involved betting on the narrowing of GBTC's discount to net asset value (NAV). Bitcoin has witnessed a decline exceeding 15%, settling around $41,300. JPMorgan reports an outflow of $1.5 billion from the Grayscale Bitcoin Trust (GBTC) during this period.
Earlier, the bank had approximated that up to $3 billion was invested in GBTC in the secondary market throughout 2023 to capitalize on the trust's discount to net asset value (NAV). Assuming this estimate is accurate, and considering that $1.5 billion has already been withdrawn, there might be an additional $1.5 billion exiting the market through profit-taking on GBTC. This additional outflow is anticipated to exert further pressure on Bitcoin prices in the upcoming weeks.
Another chart that would help understand the post-ETF approval action a little better is shown below (Figure 2). The graph illustrates the monthly net position change of Bitcoin, representing the 30-day shift in supply held by long-term holders. Glassnode categorizes long-term holders as wallets with a track record of retaining coins for 155 days or longer. This metric turned negative at the beginning of the month, signaling net selling by long-term holders. On Wednesday, it declined to -33.951 BTC, marking the lowest point since December 2022.
Nonetheless, I still believe it is going to be a big boost for Bitcoin and cryptocurrencies in the long run, with a lot more institutional money flowing toward digital assets. Just look at the price action of Gold, since its ETF approval back in 2003. While the price of the digital asset has slid since the ETF approval, the big money has already started to flow its way. While Gold may be some way off, Bitcoin ETFs have already taken down another precious metal.
Upon approval by the U.S. SEC last week, Bitcoin ETFs quickly surpassed silver ETFs in assets, ranking second only to gold among commodity-focused U.S. ETFs. The conversion of the existing Grayscale Bitcoin Trust into an ETF resulted in an immediate accumulation of almost $30 billion in Bitcoin ETFs, as reported by data from CoinDesk - compared to $11 billion in Silver ETFs. Notably, gold, often referred to as the analog to Bitcoin, remains the most popular commodity with approximately $95 billion in assets.
It is going to be an eventful 2024 for cryptocurrencies with the Bitcoin halving coming up sometime in May - a decreased BTC supply could fuel bullish momentum. Right around the same time, a decision by the SEC is expected on the ETF for the second largest cryptocurrency Ether (ETH), which has just undergone the Dencun upgrade - introducing a new, cost-effective method of data storage on its main blockchain. Time for the digital assets to finally shine through.
Originally Published on Substack
LinkedInStockTwits
