Potential Selling Pressure After Bitcoin ETF Approval
According to K33 Research, the decision on Bitcoin spot ETFs is expected to be made between January 8 and January 10. Senior Analyst Vetle Lunde predicts that regardless of the timing, the approval of ETFs is likely to trigger a sell-the-news event.
Lunde points out that traders are heavily exposed ahead of the verdict, with derivatives showing significant premiums after Bitcoin’s recent upward momentum. Many short-term market participants may look to take profits during this event, potentially leading to a sell-off.
Lunde assigns a 75% probability to the sell-the-news scenario, a 20% chance of approval, and a 5% possibility of ETF denial based on recent positive signals from meetings and updated S-1 prospectuses with the Securities and Exchange Commission.
Market Froth and Increased Long Exposure
The analyst highlights signs of market froth, including a surge in futures premiums on the Chicago Mercantile Exchange (CME), which have reached annualized levels of 50%. Institutional participants have been increasing their long exposure in anticipation of ETF approval. The futures premium represents the difference between the spot price and futures price of an asset.
Open interest has grown by over 50,000 BTC in the past three months, likely driven by expectations of spot Bitcoin ETF approvals. However, maintaining CME exposure at current premiums incurs a rolling cost each month. While this cost is acceptable in the medium term before a pivotal event, it may become unsustainable in the long term as cheaper exposure alternatives emerge.
Retail Side Funding Rates and Potential Long Squeezes
Funding rates on offshore exchanges have reached extreme levels, hitting an annualized high of 72% during Bitcoin’s recent overnight rally. This indicates that shorts are hesitant to enter the market with the ETF verdict approaching, causing perpetual contract premiums to the spot market and making longs expensive to maintain. Lunde warns that aggressive leverage from long positions could set up the market for long squeezes following the ETF verdict.
Hot Take: Potential Selling Pressure After Bitcoin ETF Approval
The approval of the first spot Bitcoin ETF is eagerly anticipated, but there is a strong possibility of selling pressure after the decision is made. K33 Research predicts a sell-the-news event, with traders looking to take profits following the approval. Signs of market froth and increased long exposure indicate that many participants are expecting positive news.
However, maintaining exposure at current premiums may become unsustainable in the long term. Additionally, high funding rates on offshore exchanges suggest caution as shorts hesitate to enter the market. Aggressive leverage from long positions could lead to potential long squeezes post-ETF approval. It remains to be seen how the market will react to this significant milestone in Bitcoin’s journey.
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