We Bought the Rumour - Let's Buy the News!
A new year is upon us, and I hope you’ve had a chance to recharge the batteries because 2024 is already looking as if it will be one where we need to pay attention!
For starters, Bitcoin had a hell of an entry into the year and set a new 365-day high just above the $45.000-mark.
More importantly, next week (before the 10th of January), we will finally know the verdict of the pending ETF applications.
Bitcoin Spot ETF: What Do We Know
The last few months’ momentum in Bitcoin’s price has primarily been driven by the expectations of the first Bitcoin spot ETF approval. Since Bloomberg’s analysts publicly suggested a 99% probability of approval, everyone slammed the buy button and both sentiments and valuations began a very rapid ascent upwards.
On Wall Street, this type of investor behaviour is referred to with the old saying “buy the rumour, sell the news”.
The basic premise of this is that price appreciation happens before upcoming news materialises and not after because we all are smart (and greedy) enough to get onboard beforehand. In other words; when the news finally hits, there will be noone left to buy.
In the crypto economy, this phenomenon has played itself out again and again. Just from the top of my head I can remember the following list of events where investors got disappointed when news materialised:
CME Futures Launch
BAKKT Launch
Coinbase IPO
(See the chart for price references to what happened next)
History Never Repeats – Does it Rhyme?
With those events in mind, it would be easy to think that the ETF decision date (even if positive) will be yet another disappointing launch of an investment vehicle for institutions.
However, I think this time will be different, and that we will get an approval before the 10th of January.
First off, all of my speculation here is based on the assumption that the ETF will be approved. Since 2017 when I saw the first ETF get rejected by the SEC, I have been very negative on the prospects of one getting approved – however, this time around, there’s simply to many signals pointing towards a positive outcome: world’s biggest asset managers engaged, dialogue with the SEC, amendments to proposals, multiple amendments on applications, changes on managers investor facing landing pages online, insiders hinting positivity, etc.
Here’s why I think It’s a Time to Buy:
The ETFs legitimises crypto as an asset class under its flagship Bitcoin. This takes Bitcoin out of its obscure corners, and forces every single investment advisor in the world to consider it. There is no excuse for not considering exposure to BTC now (!)
The ETFs provide clarity on previously muddy subjects such as legal, accounting, tax, and custody. These hurdles have prevented many large scale investors from taking exposure from not having to deal with the complication of taking small portfolio exposure to Bitcoin. With the ETFs in place, exposure to BTC will be similar to any other stock and will be treated equally.
The ETFs have already started competing on marketing, management fees and corporate image. Just yesterday, VanEck went as far and pledged a 5% profit share to the Bitcoin core devs from all trading of their ETF.
Rumours on the street says that BlackRock has secured around $2-3B in commitments already. In comparison, the first Gold ETF secured $1B in commitment within the first three days of trading. I have no basis for thinking the Bitcoin launch should not be at least on equal terms of this, and I am speculating that it will outperform the Gold ETF with a magnitude of 3-5X. That’s $3-5B in
The inflows will keep coming and coming. The performance of the first few trading days are important but longer term this is the most powerful onramp for capital to enter Bitcoin. As the price of BTC will increase so will interest over time, and this will spark interest even higher. I believe this takes Bitcoin back to a trillion dollar market cap, and inflows over the next year could be north of $20B.
All in all this is very exciting for all of us with exposure to Bitcoin, and there’s no doubt, we are in for one hell of an interesting week coming up!
Stay safe. Trade only on your own initiative, and stay out of leverage.