Happy New Year and welcome to Distributed Ledger. This is Frances Yue, crypto and markets journalist at MarketWatch.
Bitcoin has had a particularly volatile start to 2024. The crypto BTCUSD,
on Tuesday topped $45,000 to hit the highest level since April 2022, but then fell 9% on Wednesday to $40,838, according to CoinDesk data.
These drastic measures came days before an important deadline on which the United States Securities and Exchange Commission will make a decision on whether to approve exchange-traded funds investing directly in Bitcoin.
The agency faces a Jan. 10 deadline to determine whether to approve the bitcoin spot application filed by Ark Investment and 21Shares. Although the market consensus is that the SEC will approve the ETF and other similar products by that date, some disagree.
For example, Matrixport’s Markus Thielen wrote in a Tuesday note that he expects the SEC to deny all Bitcoin ETF applications this month because the applications might not meet the requirements that must be filled. Some blamed the report for triggering Bitcoin’s price decline on Wednesday.
I sat down with Austin Reid, Global Head of Business at FalconX, a cryptocurrency brokerage serving institutions, to talk about Bitcoin’s recent volatility and how traders have positioned themselves for the ETF decision of the SEC.
More volatility to come?
Bitcoin’s decline on Wednesday was mainly due to leveraged liquidations, Reid said. “I don’t think it necessarily reflects a fundamental change from the outlook for approval of the ETF,” Reid said on a call.
“From our perspective, we still believe that a (bitcoin) ETF is more likely than not to be approved, and we see more sophisticated market participants continuing with this outlook, regardless of some short-term moves term.”
Nonetheless, Reid said he has seen increased market activity in recent weeks as crypto traders position themselves for the ETF decision.
The Bitcoin options market is currently forecasting a 10% move for the crypto in one direction or the other next week, Reid noted.
Even if a Bitcoin ETF is approved, there could still be volatility ahead.
For now, the crypto market is pricing initial inflows of around $1 billion to $2 billion into Bitcoin ETFs, Reid said, citing research from FalconX. If inflows fall significantly below the range, bitcoin could fall and vice versa.
Crypto at a glance
Bitcoin edged down 0.1% over the past seven days and traded at around $42,700 on Wednesday, according to CoinDesk data. Ether ETHUSD,
rose 2.5% over the same period, to around $2,200.
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