Spot BTC ETF: Analyzing sell the news event if an approval does come

• Window for spot BTC ETFs is barely a week out from opening, between January 5 and 10, ETF experts say.
• The market has cooled off ahead of 2024, with traders exercising caution evidenced by the dwindling trading volume.
• Concerns over a sell-the-news situation playing out post-expected approval continue to brew, reinvigorating investor caution.

Exchange-traded funds (ETFs) specialists with Bloomberg Intelligence James Seyffart and Eric Balchunas hold firm to their 90% odds of an approval coming between the January 5-10 window in 2024. In anticipation for this event, which is expected to bring billions of dollars into the crypto space, volatility soared in the market over the past months. However, as the calendar date closes in, speculation of a sell the news event has traders and investors on ‘safety-first’ mode, with trading volumes dwindling in the BTC market as attention turns to altcoins.

Also Read: Bitcoin ETF news and five most asked questions regarding spot ETF approval

Sell the news event after buying the rumor

Buy the rumor sell the news is a popular narrative in the crypto and trading scenes in general, and often proves accurate. It defines a contrarian trading strategy “predicated on anticipating market reactions to rumors and news announcements,” according to Liberated stock trader insights.

With investors looking to capitalize on price movements, they act before the masses widely distribute or spread and process the information. The action, which is essentially buying, pumps the asset’s price, putting them at a profit when they decide to sell on the news.

Towards the last half of 2023, the cryptocurrency market witnessed multiple price surges with Bitcoin (BTC) recording significant moves. This came on the back of rumors about the imminent approval of a spot Bitcoin ETF, which were subsequently delayed. Nevertheless, the pattern fueled anxiety among traders and investors.

The anticipation and potential approval has clearly resulted in buying enthusiasm, with markets turning bullish beginning around October 18. X user Credibull Crypto called this, “buy the rumor, buy the news event.”

Nevertheless, there is also support for the possibility of a sell-off post-approval. This argument draws inspiration from the fact that ETFs must purchase BTC with cash, and there being no option to repurpose existing Bitcoin holdings.

Possibility of a sell the news event in case of spot ETF approval 

With expectation of intense competition among the prospective issuers to become the ETF with the most liquidity, there could present a situation where the filers expedite purchases, same case for retail investors, in a fear-of-missing-out (FOMO) situation.

With investors and traders in the market, the former buys and hodls while the latter trades short term using leverage through futures and options to play themes. ETFs are one such theme.

With this, January 5 to 10 or more accurately, the announcement day, is expected to be a liquidity event. This means many short-term traders will be looking to use it to exit in size. Considering many traders are leveraged, it should not come as a surprise if their size (exit liquidity) could be large short term, with the ensuing selling pressure pushing prices down as these short-term traders exit the market.

Nevertheless, with traders out, the market will be left with investors coming to ride the bullishness that the ETF promises. This is because of capital inflow into the market as the institutions buy BTC. Specifically, the institutions will have the freedom to capitalize on institutional money looking for exposure to BTC, which already provides counter-exposure to the continually debased US Dollar (USD).

As such, the possible approval news giving large firms the go-ahead to market Bitcoin ETFs would allow financial advisors to finally get their clients some exposure. With demand present, prices are bound to go up.

Meanwhile, it is impossible to ignore the fact that pumpers have gone quiet of late, evidenced by the lull in the BTC market, so much so that Bitcoin price has been unable to overcome a weekly supply zone.  

Amid fears of the sell-the-news situation, attention has shifted to altcoins, with Ethereum taking the lead, possibly because of the assumption that when BTC ETF is confirmed, the ETH ETF will certainly follow.

This explains the capital outflow from the Solana (SOL) market to the Ether market. 

Also Read: Bitcoin Weekly Forecast: BTC coils up for one last buy opportunity before potential 2024 spot ETF rush