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A timeline for potential approval of a Bitcoin ETF, relevant analytics and the bull and bear cases for it.
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This week we dive into the anticipation of what looks like an imminent approval of a U.S. listed Bitcoin ETF. We analyze the market’s positioning as important dates approach and interesting patterns emerging. Finally, we also assess the potential impact the approval could have if/when it gets approved, not only on Bitcoin but for the rest of the crypto market as well.
Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Both Bitcoin and Ether registered double-digit increases in fees, showing growing demand to transact in their blockchains as prices rise
Check recent values and more information here.
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
- $219M worth of Bitcoin left centralized exchanges, pointing to investors looking to hold ahead of next week
- $266M worth of Ether was withdrawn from exchanges compared to $300M being deposited the previous one, suggesting a shift in positioning
Check recent values and more information here.
Bitcoin ETF Week
Bitcoin continues to outperform, with only Polkadot increasing more in price out of the top 10 crypto-assets over the past week. Bitcoin dominance is closing in on 50% and is currently near a three month high. Much of this is likely due to anticipation for a Bitcoin exchange-traded fund (ETF) that may get approved as early as next week.
Here is the timeline — key dates leading up to the potential first US-listed BTC ETF:
- July 26 — SEC’s official twitter states “Thinking off investing in a fund that holds Bitcoin futures contracts?…”
- July 27 — First U.S. Bitcoin mutual fund (BTCFX) approved; launches next day
- Aug 3 — Gensler hints about SEC being open to futures-backed Bitcoin ETF
- Aug 5 — ProShares and Invesco submit proposals for futures-backed ETFs
- Aug 9–20–5 more applications for futures-backed ETFs are submitted
- Oct 14 — SEC tweets “Before investing in a fund that holds Bitcoin futures contracts…”
- Oct 14 — Ark files for futures-backed Bitcoin ETF (ARKA)
- Oct 14 — Bloomberg states “Bitcoin futures ETF said not to face SEC opposition”
- Oct 18–19 — ProShares and Invesco Bitcoin futures-backed decisions due
Next week the SEC can choose whether to accept, reject or postpone the decision for the upcoming ETFs. However, Bloomberg’s senior ETF analyst is giving it over 90% odds of at least one futures-backed ETF being approved next week.
What is a futures-backed ETF? These ETFs are settled with underlying derivatives contracts on the CME, rather than actual Bitcoin. There are a few key differences versus “physically” backed ETFs:
- Investors would not be able to withdraw BTC from the fund for arbitrage purposes or otherwise
- Since Bitcoin futures are typically in contango, or priced at a premium relative to spot markets, it could incur high costs and create downward pressure on price. This would be the case as the ETF would be selling positions ahead of expiration and buying, or rolling over, those positions into the next contract at a higher price
Regardless of these intricacies, the market appears to be laser focused on the ETF. Bitcoin’s price and search trends for “Bitcoin ETF” have been soaring in tandem.
As of October 12 through IntoTheBlock’s Bitcoin social indicators
The correlation between Google search trends for “Bitcoin search trends” and BTC’s price has climbed to 0.91, indicating a very strong statistical relationship between the two. While many will point out that this does not necessarily point to causation, it does highlight the market’s emphasis on the upcoming ETF decisions.
This also became evident following Bloomberg’s news of the SEC not posing opposition against the ETFs, which came around 10:15PM EST. Centralized exchanges registered tremendous buying activity throughout the following minutes.
As of October 15 through IntoTheBlock’s Bitcoin order books indicators
Trades per Side — order books have market makers, who provide liquidity, and takers who remove liquidity through market orders. The Trades per Side indicator aggregates the volume of takers based on whether they are buying or selling. Here we observe a couple of interesting patterns:
- Takers bought over 750 BTC in a minute in three separate occasions between 10PM and 1AM (EST)
- Average volume grew by over 20x within minutes, indicating the overwhelming relevance of the Bitcoin ETF in trading activity
The Bull & Bear Cases for the Bitcoin ETF
The crypto space has awaited an ETF for years, with the Winklevoss twins applying for one as early as 2013. Although a futures-backed ETF might not be exactly what the industry wished for it would be a milestone nonetheless. And it is likely to have significant implications for Bitcoin and the rest of the crypto market. Here we explore two potential outcomes (not financial advice!):
The bull case — After years of rejected ETFs, Bitcoin and its community is poised to finally get one approved in the U.S. This should bring institutional participants who may have been hesitant to go out of their way to buy and custody Bitcoin on their own. It may also make investors feel more comfortable as this could be a regulatory stamp of approval and a sign that crypto is not going away.
This could propel Bitcoin to new all-time highs, potentially as early as this weekend. One or more ETFs get approved next week and begin trading within a few days. Reception of the first ETF is remarkable with billions of dollars of inflows per day. Given that the ETF incurs costs from the contango of futures contracts, investors seek to short the ETFs while going long in spot markets, pushing prices higher and pocketing the difference.
After a few weeks of new all-time highs the market rotates into other crypto-assets in anticipation of a parabolic run-up like the one seen in December 2017 and early January 2018. Due to these inflows, most crypto-assets hit new all-time highs, as few people are willing to sell in anticipation of a bullish end of the year.
The bear case — The ETF decisions get rejected or postponed. After such anticipation and buying activity front-running the announcement, this is likely to crash all crypto markets, and potentially create doubts of further highs this year.
Another bearish outcome would be the market extensively selling the news. If the ETF is approved and launched within days (as was the case with the mutual funds), investors would have a new way to short Bitcoin shortly after the approval.
Selling pressure in derivatives markets can simultaneously deter buyers from spot markets, crashing prices similar to how the launch of Bitcoin futures in December 2017 marked the top. The rest of crypto market would bleed along with Bitcoin.
Overall, it is likely that the crypto market takes a path in between these two. While the odds of an approval of an ETF appear to be quite high, it is possible for Bitcoin to be vulnerable to an upset or too many investors selling the news. Ultimately, this approval would still be a milestone for the crypto space as it continues to evolve and become ever-more-present in the real economy.
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Bitcoin ETF Week was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.