Key Takeaways:
- Analysts caution that a potential approval of a Bitcoin ETF could trigger a market correction despite the prevailing optimism.
- CryptoQuant predicts Bitcoin’s retracement to $32,000, citing a potential “sell-the-news” event, as per their report.
- Bitcoin prices surged 60% in the six months following the first spot Bitcoin ETF application with the SEC. Approval for the product is anticipated on January 10, 2024.
Crypto enthusiasts are eagerly waiting for the US Securities and Exchange Commission (SEC) to approve the first-ever spot Bitcoin exchange-traded fund (ETF) early next year.
While the event could send the leading cryptocurrency’s price much higher, some analysts expect the long-awaited news to trigger a price correction for Bitcoin (BTC).
Bitcoin ETF Approval Could Be A Sell-the-News Event That Would See Traders Taking Profits
According to a new report by blockchain data provider CryptoQuant, BTC prices could face downside pressure if the SEC happens to approve a spot Bitcoin ETF on January 10.
The report describes it as a potential “sell the news” event with Bitcoin retracing as investors liquidate their positions to take profits.
Sell the news is a term used in capital markets to describe how asset prices, leverage, and sentiment rise in the lead-up to a bullish event only for prices to tumble shortly after.
The event occurs because astute traders capitalize on the over-crowded long trade, trapping those with leverage and forcing them to close their positions or get liquidated as the asset’s price rallies downwards.
In a note to crypto news outlet CoinDesk, CryptoQuant said that unrealized profits of traders are currently lingering at a level that historically precedes a price correction.
In the past, Bitcoin’s value has tended to drop back to the “short-term holder realized price”, which is the price level where the supply of short-term BTC holders is at.
Bitcoin Predicted To Drop Down To $32,000 Following Spot BTC ETF Listing
Based on previous cycles of bull market price corrections, there is potential for BTC to retrace to $32,000, as per CryptoQuant’s estimates.
The analysts noted that short-term BTC holders are experiencing high unrealized profit margins of 30%, which has historically preceded price corrections.
CryptoQuant also pointed out that short-term Bitcoin holders are still spending at a profit, while rallies are usually triggered after short-term losses are realized.
Popular crypto trader “Crypto Caesar” put things into perspective in a recent X post, where he said that the longer Bitcoin continues to climb towards $50,000 without an ETF approval, the more chances it could be a sell-the-news event.
The CryptoQuant report speculates that BTC gaining over 157% year-to-date on the back of the massive optimism fueled by the pending approval of a spot Bitcoin ETF could turn into a selling pressure once the event takes place for real.
Crypto analysts see a 90% probability that the SEC will approve a spot-market traded Bitcoin ETF in the first quarter of 2024.
Over a dozen crypto and traditional asset managers, including BlackRock, Fidelity, ARK Invest, and Bitwise, have spot Bitcoin ETF proposals pending approval from the federal securities regulator.
At the same time, crypto researcher Samneet Chepal argued that a strong basis in the trade market for Bitcoin indicates there could be more room to run for the cryptocurrency.
He noted that with BTC futures trading at a 10% premium to the spot price, which is close to the yearly highs, the potential returns are far outpacing benchmarks like the 4.2% yield on 10-year treasuries.
Investors Warned of Bitcoin Experiencing High Volatility In Coming Weeks
Chepal believes that these numbers could “potentially surpass previous cycle highs” If Bitcoin keeps rising before the much-awaited ETF approval early in the following year.
He also added that being a famously volatile asset, it is tricky to predict whether the ETF approval could be a sell-the-news event for Bitcoin.
Meanwhile, digital asset management firm Capriole Investments said in a blog post that it would make more sense to have a “conservative portfolio management” in the lead-up to the potential ETF approval.
The firm highlighted that with BTC up over 60% since the “ETF mania” began almost six months ago and everyone expecting the SEC to approve the funds “on or around January 10”, investors should anticipate “much larger volatility events in this region”.
“Risk today is substantially higher for long Bitcoin positions than it was just a few weeks ago”, wrote Capriole in the blog post.
Sell-the-news events have occurred in the past for Bitcoin. For instance, back in 2017, BTC topped out at $20,000 after the Chicago Mercantile Exchange (CME) listed BTC futures ETFs, while In 2021, the apex cryptocurrency hit a high of $65,000 after Coinbase completed its IPO, then peaking at $69,000 – its all-time high – before losing ground in subsequent months.
The prospect of a BTC spot ETF being approved by the US SEC could be the catalyst for a historic year for Bitcoin. However, concerns remain that the crypto asset could decline in value shortly after the major news finally materializes.
At the time of writing, Bitcoin (BTC) is trading at $42,645 – down 1.1.% in the last 24 hours.
