For several years now, market analysts have believed that the approval of BTC ETFs in the US could significantly contribute to further growth in the price of BTC, as the best-known cryptocurrency would become much more easily accessible to institutional investors thanks to the regulated ETF. However, Dan Morehead, CEO of Pantera Capital, is concerned that the market will react exactly the opposite to approving this product.
The BTC ETF theme is hot these days too. Between October 18 and November 1, the US Securities and Exchange Commission (SEC) is due to comment on four applications for so-called “BTC futures ETFs” from ProShares, Invesco, VanEck, Valkyrie and Galaxy Digital. Subsequently, on November 14, he must give a definitive verdict on the application for approval of VanEck’s more traditional spot BTC ETF.
– Will Clemente (@WClementeIII) October 12, 2021
Bloomberg analysts think there is a 75% chance that the SEC will give permission for at least one of the aforementioned BTC Futures ETFs in October. ProShares is said to have the best chance, and the SEC will be the first to express its request this week, or next Monday at the latest (but it can also postpone the verdict).
Dan Morehead is worried about the ETF
When the first gold ETF was approved in the past, the price of the most famous commodity began to rise sharply and over a long period of time. Many think that ETFs can have a similar effect on BTC. However, Dan Morehead from Pantera Capital points out that the markets often have so-called “buy the rumor, sell the news”.
In other words, he is convinced that the price of BTC may currently include expectations of BTC ETF approval, but when the ETF is actually approved, the price of BTC will then fall (the new product will be sold). Something similar has happened to the crypto market in the past. He also gave specific examples.
The first was launch of BTC futures trading on the Chicago Stock Exchange CME at the end of December 2017. BTC has been rising at an insane rate for so many months, and many investors have thought that CME futures will push its price even higher. However, the exact opposite happened, and from that moment BTC entered the phase of the long-term bear market. From a historical high recorded on December 17, it has fallen over time by as much as 83%.
The second example was this year’s high expectations from the start of trading of Coinbase shares on NASDAQ. The fact that Coinbase became the first crypto exchange whose shares began to be publicly traded was, according to many, a big bullish signal for the entire crypto market. However, the price of BTC also fell sharply for a short time – from ATH about 64 thousand dollars fell in the following weeks by 53%.
Morehead therefore stated: “Will anyone remind me of this the day before the official launch of BTC ETF? Maybe I’ll get rid of some Bitcoin.” he joked. Morehead, on the other hand, said that the BTC market is currently in a different position than it was in 2017, for example, and thinks that future bear markets will be “shallower”, ie less bloody.
What can Morehead be wrong about?
The launch of BTC futures on CME at the end of 2017 really came shortly before the start of the big and long bear market. However, BTC and, in addition to it, altcoins were at that time in the phase of absolute buying fever (FOMO), which was clearly not sustainable. Long-term investors at the time could really use CME’s Futures launch to pick up profits because they sensed an early bubble burst.
At present, however, unlike in December 2017, the market is not yet in the phase of manic purchase of retail cryptocurrencies, as indicated by data from Google Trends, according to which BTC’s search rate is only 26 points out of 100. The greatest interest in it (100 out of 100) was in the period when BTC futures were launched on CME in December 2017. At the time, BTC was also in an unsustainable parabolic phase from the point of view of the graph, while at present it is not even at its historical price highs.
As for this year’s price drop after the launch of Coinbase trading on NASDAQ, it would be naive to think that this fact was the main trigger of the whole decline. The BTC price was undermined in May mainly by the ban on cryptocurrency mining in China, as a result of which the BTC hashrate fell by about half. At the same time, criticism of BTC’s mining was growing from an environmental point of view, and for this reason it stopped accepting BTC payments. These facts had a much more fundamental effect on the price of BTC than Coinbase’s entry into the market.
There is a difference between approval and execution
It should also be noted that the launch of BTC Futures in December 2017 was a long-awaited event. CME announced this several months before the moment, which means that the market could prepare for this event and the strategy of “buy the rumor, sell the news” could really be used.
In contrast, waiting for BTC ETF approval pending a SEC decision, the market does not know whether or not to obtain a permit application. So if there were to “buy speculation, sell the news”, a scenario of fulfilling this thesis might not be more likely until the first BTC ETF really starts trading and not when it is agreed, as no one knows the date in advance.