‘Buy the rumor, sell the news’ — Bitcoin ETF may spark TradFi sell-off

Bitcoin retail investors may end up with a hot potato if the spot ETF go-ahead plays out like gold 20 years ago, analysis considers.

Bitcoin (BTC) may suffer when the first spot exchange-traded fund (ETF) is approved by the United States, a new warning says.

In a thread on X (formerly Twitter) on Nov. 28, Joshua Lim, head of derivatives at capital market firm Genesis Trading, predicted a volatile start to 2024 for BTC price action.

Bitcoin ETF approval: Retail may be left holding the buck

Bitcoin is already a target for traditional finance, or “TradFi,” which is betting on winning big out of the spot ETF approval, Lim said.

“We know tradfi guys / macro tourists are already long crypto ahead of ETF news, they’ve built the position over the last few months and are now paying handsomely to roll it,” the thread explained alongside data covering open interest on CME Group’s Bitcoin futures.

“Commitment of traders data showing asset managers increased length by about $1bn since end of Sep.”

The signs are there in the performance of the first Bitcoin futures ETF (BITO), as well as stocks of crypto firms such as U.S. exchange Coinbase (COIN), the latter up 250% year-to-date.

While generating buzz and emboldening the institutional adoption narrative behind Bitcoin, the party could nonetheless quickly fizzle once the spot ETF is actually given the green light. This, Lim and others suggest, would be a classic “buy the rumor, sell the news” event.

“What does it all mean?” he queried.

“Tradfi is already long and probably thinking about when to exit this trade around etf announcement expect retail to pile in.. and expect tradfi guys to exit (2021 tops in basis were prior to COIN and BITO listings).”

A gold ETF rerun?

Lim is not alone in wondering if ETF approval day will ultimately leave lay investors disadvantaged.

Related: Bitcoin metric that ‘looks into future’ eyes $48K BTC price around ETF

Responding, James Straten, research and data analyst at crypto insights firm CryptoSlate, channeled history to support the concerns.

“When the Gold ETF (GLD) was introduced in November 2004, it opened around $45 and dropped to approximately $41 by May 2005. However, it saw an impressive 268% increase over the subsequent seven years,” he added in a CryptoSlate analysis on Nov. 28.

On a more optimistic interim note, popular trader Jelle remarked that institutional interest had not been dented by the week’s news stories, including the $4.3-billion settlement between the U.S. government and the largest global crypto exchange, Binance.

CME futures, he stressed, continue to trade at a premium over the Bitcoin spot price.

Interesting to note that throughout all of the courtroom drama, institutions are accumulating #Bitcoin.

The CME currently has a >$350 premium to the Bitfinex spot price — and it has consistently traded at a premium for well over a month https://t.co/3SAXRnMMRq pic.twitter.com/TAZDm6IABd

— Jelle (@CryptoJelleNL) November 28, 2023

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.