Bitcoin (BTC) spot ETF approvals are likely to become a “sell the news” event this month, according to K33 Research analyst Vetle Lunde. Lunde states that this outcome will occur with a 75% probability, the probability of approval entries increasing prices is 20%, and the probability of applications being rejected is 5%.
K33 Research expects significant price fluctuations in the coming weeks. According to analysts, the market is expected to be volatile until the ETF news is confirmed.
Spot ETFs are certainly priced in advance, but whether that is by much will depend on flows after approval, analysts say. K33 expects to see flows from downstream products into spot ETFs, but the critical factor is the net inflow of new money.
The analyst pointed to signs of froth in the market, with futures premiums on the Chicago Mercantile Exchange (CME) rising to 50% annual levels as institutional participants continued to build long positions, revealing confirmation expectations. Premium can be defined as the difference between the spot price and futures price of an asset.
Lunde added that open interest has increased by more than 50,000 BTC in the last three months, which is likely due to advance preparation for Bitcoin spot ETF approvals:
“At current premiums, maintaining exposure to CME requires a cost of 1-2% each month, which is an acceptable carry cost over a medium-term horizon ahead of a significant event but may be worth more over the longer term, especially as cheaper exposure alternatives emerge.” unsustainable.”
On the retail investor side, funding rates on offshore exchanges are also reaching extremes, reaching a yearly high of 72% during Bitcoin's recent overnight rally. “With one week to go before the ETF decision, shorts are reluctant to enter the market, increasing perp premiums to the spot market and making it expensive to maintain long positions,” K33 Research said and added:
“Aggressive leverage from long positions could set the market up for long squeezes following the ETF decision.”
Lunde expects the current Bitcoin price rally to peak at the ETF decision date as short-term traders take massive profits and unsustainable premiums. But longer term, the analyst thinks money flowing into potential spot ETFs, combined with the supply shock from April's Bitcoin halving event, will compound favorably as the year progresses.
*This is not investment advice.