Wall Street jinx? Traders weight ‘sell the news’ potential after Bitcoin ETF launch

Bitcoin

The previous big launches of Bitcoin-related products on Wall Street were followed by multi-month price slumps.

Wall Street opened its doors for the first Bitcoin (BTC) exchange-traded fund (ETF) on Oct. 19, with the listing of ProShares Bitcoin Strategy (BITO) on the New York Stock Exchange. The fund attracted more than $1 billion in trading volume on its first day, while BTC price rallied to a new record high of $67,000.

But the spot gains did not stay for too long with BTC paring some gains going into the weekend.

Bitcoin price corrected by almost 11% from its all-time high to reach levels below $60,000 on Saturday, raising fears about selloffs that typically come after the launch of major crypto derivatives products on Wall Street.

Analysts call for wider BTC correction

Nunya Bizniz, an independent market analyst on Twitter, recalled two of such major events: the listing of the first Bitcoin futures on the Chicago Mercantile Exchange (CME) and the debut of the crypto trading service Coinbase's stock (COIN) on the Nasdaq stock exchange.

*Notable Wall Street listings coincided with spot Bitcoin price tops. Source: TradingView*

Notably, CME launched its Bitcoin Futures product on Dec. 18, 2017, the date on which Bitcoin rallied towards its then-record high of around $20,000. But the launch also marked the beginning of one of Bitcoin's longest bear cycles, which bottomed around $3,200 twelve months later.

Similarly, the much-celebrated COIN's debut on Wall Street on April 4, 2021, coincided with Bitcoin rallying to a new all-time high around $65,000 just ten days later. Nonetheless, the upside move met a bout of strong selloffs, causing BTC to correct to as low as $28,800.

Nooo, God. No God, please no! No! No! Nooooooo! pic.twitter.com/ITKFBJqK6h
— Nunya Bizniz (@Pladizow) October 22, 2021

As a result, the recent ProShares Bitcoin ETF left Bizniz and many other analysts worried about the so-called "buy the rumor, sell the news" correction. For instance, analyst Lark Davis noted that he "wouldn't be surprised" if the Bitcoin price crashes following the ProShares ETF launch just like it did after the CME Bitcoin Futures launch.

#bitcoin CME futures
- Announced October 31st 2017.
- BTC rallies 224%
- Launch on December 18th, the day BTC hit the 2017 market high

Would not be shocked to see the ETF launch play out exactly like this.

Epic buy the rumor, sell the news event pic.twitter.com/sKrmhdLxQv
— Lark Davis (@TheCryptoLark) October 8, 2021

Also, Dan Morehead, CEO and co-chief investment officer at Pantera Capital, wrote in a newsletter earlier this month that "he might want to take some chips off the table" ahead of the Bitcoin ETF launch.

Impressive debut for Bitcoin ETF

Despite historic bearishness associated with high-profile Wall Street crypto listings, some analysts believe the Bitcoin ETF's impressive debut would mean result in limited downside moves in the spot BTC market.

Todd Rosenbluth, head of ETF and mutual fund research at CFRA, told the Financial Times that ProShare's $1-billion debut is "a sign of the pent-up demand" among traditional finance companies looking to score a slice of the rising crypto industry.

JPMorgan Chase added that retail traders accounted for only 12-15% of net inflows into BITO on the first two days of trading.

That pointed to a significant interest in Bitcoin ETFs among institutions, with cash-marginated Bitcoin Futures open interest rising by up to 79% month-to-date and CME basis going from negative in July to above 16% earlier this week.

*Bitcoin futures open interest across all exchanges. Source: ByBt.com*

Noelle Acheson, head of market insights at crypto trading firm Genesis, noted that Bitcoin's perpetual futures rolling basis, a metric to gauge the demand for leverage, ticked up but was still only 13.08% compared to mid-April's 34.6%.

High leverage remains a common factor across recent spot BTC market corrections. In other words, the neutral funding rates at the moment suggest that the chance of a big pullback is relatively low.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Bitcoin

Regulatory uncertainty could be the cause for yet more delays in the approval of long-awaited Bitcoin exchange-traded products.

Crypto asset investors may have a longer wait for a Bitcoin futures exchange-traded product according to Todd Rosenbluth, the senior director of ETF and mutual fund research at research firm CFRA.

Speaking on CNBC’s “ETF Edge” on Oct. 12, Rosenbluth stated that while a Bitcoin futures product is likely to be the first crypto ETF to gain approval, he cautioned that the current clouded regulatory situation could cause further delays.

There are more than 20 crypto asset-based exchange-traded products waiting for Securities and Exchange Commission approval, and the regulator is yet to pass any, instead kicking the can down the road on multiple occasions.

The researcher suggested that regulators could be waiting for all of these products to meet their goals so that they can be approved at the same time to avoid a “first-mover advantage,” before adding:

“It’s possible — in fact, we think it’s likely — that we’re going to see a delay of a Bitcoin futures ETF until 2022, until the regulatory environment is more clear.”

Van Eck Associates CEO, Jan van Eck, commented that the primary concern for the SEC is the discrepancy between actual Bitcoin prices and the price of the futures contract, in addition to the potential of funds getting too large.

When there is a Bitcoin rally, futures strategies can underperform by as much as 20% a year, he stated before adding “the SEC wants to have some visibility into the underlying Bitcoin markets.”

Van Eck also suggested that the regulator needs to gain more control over crypto trading which it appears to be attempting with its recent threats against Coinbase and the exchange’s stablecoin lending product. Other popular trading platforms such as Robinhood are already regulated and registered as broker-dealers.

Any speculation over a possible delay could hit the Bitcoin price as analysts had suggested that big investors may be buying up BTC in anticipation of an ETF approval this month. The asset has rallied 37.5% over the past fortnight to reach a local top of $58,000 on Oct. 12, but more regulatory procrastination could quash current market momentum.

Bloomberg senior ETF analyst Eric Balchunas is still confident that there is a 75% chance that an ETF will be approved this month.

Earlier this month, the SEC extended the deadline of four BTC ETFs — the Global X Bitcoin Trust, Valkyrie XBTO Bitcoin Futures Fund, WisdomTree Bitcoin Trust, and Kryptoin Bitcoin ETF — for 45 days.

In September, Van Eck’s physically-backed Bitcoin ETF was delayed for the second time this year with a decision date set for Nov. 14 by the SEC.

CFRA