In a recent interview on Bloomberg TV yesterday, John Palmer, the President of Cboe Digital, discussed the potential impact of U.S. regulators approving the first-ever spot exchange-traded fund (ETF) for Bitcoin.
Palmer highlighted that the approval of a spot Bitcoin ETF by the U.S. SEC would mark a crucial turning point, especially for new institutional investors, including pension funds and registered investment adviser (RIA)-based vehicles:
“Seeing that approval is going to pave the way for pension funds and RIA-based funds to be able invest in assets in a spot Bitcoin ETF where they may not be able to gain that access today in just a native, spot Bitcoin token.“
The market is already responding to the potential approval of a spot Bitcoin ETF, with Bitcoin’s value surpassing $45,000 on January 2 for the first time since April 2022. At the time of writing, Bitcoin is trading at around $45,065, down 1.66% in the past 24-hour period.
This surge occurred ahead of the January 10 deadline set by the U.S. Securities and Exchange Commission (SEC) for deciding on the ARK 21Shares Bitcoin ETF.
Palmer anticipates a growth in Bitcoin derivative products following the introduction of a spot Bitcoin ETF. He expects institutional players to increasingly utilize these derivatives to hedge risks associated with Bitcoin investments.
As a regulated digital asset exchange and clearinghouse operated by Cboe Global Markets, Cboe Digital offers spot and futures crypto trading for select tokens. Demonstrating its commitment to the digital asset space, Cboe Digital is set to launch margined Bitcoin and Ether futures on January 11. This innovative offering will allow clients to trade futures without needing to post the full collateral upfront, making it more accessible for institutional participation.
As James Hunt reported for The Block yesterday, in a research note published on 1 December 2024, titled “All-time high CME premiums ahead of ETF verdict,” K33 Research’s Vetle Lunde, Senior Analyst, and Anders Helseth, Head of Research, explored the market trends leading up to the SEC’s decision on spot Bitcoin ETFs.
Lunde and Helseth suggest that the announcement might trigger a ‘sell-the-news’ event, which they view as the most likely scenario.
The analysts note significant market exposure in anticipation of the decision, with derivatives showing substantial premiums in the wake of Bitcoin’s recent upward trend. This condition could pave the way for a potential sell-off, as short-term traders might seize the opportunity to realize profits.
According to K33 Research, there’s a 75% likelihood of the ‘sell-the-news’ event happening, in contrast to a 20% chance of the ETFs receiving approval and generating substantial inflows that could mitigate selling pressure. Additionally, they consider a 5% chance that the ETFs might be rejected.
The report emphasizes a notable increase in futures premiums on the Chicago Mercantile Exchange, which have escalated to annualized rates of 50%. This surge reflects the institutional market’s expectation of the ETFs being approved. Concurrently, there has been a significant rise in open interest in BTC, presumably in anticipation of these approvals. On the retail front, the reluctance of short sellers to enter the market is evident from the extreme funding rates on offshore exchanges, especially as the decision on the spot ETFs draws near.
Despite the possibility of a short-term market downturn, K33 Research foresees a positive long-term impact from the introduction of spot Bitcoin ETFs, especially when considered alongside the Bitcoin halving event scheduled for April, which could beneficially influence the market throughout the year.
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