- Analyst predicts 75% chance of a sell-off if SEC approves Bitcoin spot ETFs, as futures premiums and leverage are unsustainably high currently.
- Traders have bid up futures and leverage in anticipation of ETF approvals, which may unwind after the decision.
- While a post-approval drop is likely, analyst sees higher prices later from new inflows and the Bitcoin
The Securities and Exchange Commission is expected to make a decision on several proposed Bitcoin spot exchange-traded funds (ETFs) within the next week. According to Vetle Lunde, an analyst at K33 Research, the most likely outcome is that any approvals become a “sell-the-news” event.
Front-Running Spot ETF Approvals
In the months leading up to the expected decision, the futures market has shown signs of traders trying to front-run potential approvals. For example, the premium on CME Bitcoin futures has surged to 50% annualized as institutional investors build up long exposure in anticipation.
On crypto exchanges popular with retail traders, funding rates have also spiked as shorts remain reluctant to enter ahead of the verdict. Aggressive leverage from longs could set up the market for long squeezes after the decision.
Open interest on CME futures is up 50,000 BTC in three months, which Lunde believes is traders positioning for ETF approvals. Maintaining this exposure has become expensive due to the high futures premiums.
Probability of Outcomes
Lunde assigns a 75% probability to a sell-the-news drop after any approvals. He sees a 20% chance of inflows from new ETFs offsetting selling and boosting prices. There is a 5% probability in his view that the ETFs are denied.
The analyst notes clear signs of froth, with unsustainable premiums in both institutional and retail crypto markets. He expects much of this leveraged long exposure to unwind after the decision.
Longer-Term Price Impact
Despite a potential post-approval sell-off, Lunde sees ETF inflows and the upcoming Bitcoin halving event pushing prices higher later in 2024. The key factor will be new inflows rather than flows from existing products.
Conclusion
The long-awaited Bitcoin spot ETF decision appears imminent, but traders may have gotten ahead of themselves. According to K33 Research, sell pressure after any approvals is the most likely near-term outcome.
