The approval of a bitcoin spot ETF is currently the biggest price catalyst the market is waiting for. And this has not gone unnoticed by traditional financial market players (TradFi). As an analysis by Joshua Lim shows, TradFi could have played a major role in bitcoin‘s recent rally to above $38,000.
Lim, former senior official of Genesis Global Trading and Galaxy Digital, shared a detailed description analysis via X (formerly Twitter), laying bare the strategies and market movements preceding the long-awaited bitcoin Spot Exchange Traded Fund (ETF).
TradFi bets big on bitcoin
Lim’s first point focused on the extraordinary volatility in the CME futures market during the November to December period. Annualized rates in this period have skyrocketed to over 23%, making it one of the most lucrative risk-adjusted trades in the bitcoin space recently.
Lim’s tweet emphasized: “CME futures settlement traded at dizzying, near-historic levels during last week’s November-December settlement window, touching more than 23% annualized at times.”
He then highlighted TradFi’s growing involvement in the crypto domain, especially in the context of the impending ETF news. Lim noted that these players have been building positions in recent months, as evident from Trader Engagement data that showed asset managers increased their length by around $1 billion since the end of September.
Lim further analyzed the dynamics of BITO, CME’s rolling futures ETF, and noted a significant increase of $560 million in its assets under management (AUM) since the end of September. He broke down this increase into $230 million coming from tickets and the rest from cash appreciation.
On the preference for futures, Lim explained: “Because as a cash-settled product, it poses fewer regulatory/operational headaches, plus it just flows into your risk systems that other CME products can already handle.” He also highlighted the impressive performance of Coinbase (COIN) stock, another accessible proxy for the TradFi crowd, which posted a notable 51% rise since the end of September.
Lim’s analysis included a critical observation about the collapse of the December premium at Monday’s open, hinting at a cash crunch during Thanksgiving week and a repositioning by bitcoin‘s native cross-players.
He explained: “That December premium collapsed on Monday, which says something about the cash crunch during Thanksgiving week and the repositioning it took for crypto-native crossover players to allocate more balance to this trade.”
He also connected the dots between these market moves and bitcoin‘s fleeting breakout above $38,000, which occurred during the CME drop window and quickly reversed. “In case you hadn’t put the pieces together, last Friday’s beautiful but fleeting breakout above $38,000 occurred during the CME launch window (10-11 a.m. ET) and subsequently faded just Afterwards… unfortunately, all good things must come to an end. .”
What to expect after ETF approval
In his concluding remarks, Lim speculated on the possible exit strategies of TradFi players surrounding the ETF announcement and the expected reactions from retail investors. He suggested: “Tradfi is already long and is probably thinking about when to exit this trade. Around the ETF announcement, retail is expected to pile in… and the TradFi guys to pull out.”
Alternatively, he suggested: “Or perhaps, in true crypto style, we could get a de-risking event for profit-taking purposes even before official ETF approval to inflict maximum pain on lazy long positions, followed by a rise towards halving”.
In particular, not everyone agrees with the thesis that a spot bitcoin ETF will be a “sell the news” event. Charles Edwards and Dan Morehead, CEO and founder of Capriole’s Pantera Capital, believe the launch of CME Futures and Coinbase’s public listing are not comparable examples.
“This is different. A BlackRock ETF fundamentally changes access to bitcoin. It will have a huge (positive) impact. (…) Once an ETF exists, if you have no exposure, you are effectively short. Buy the rumor, buy the news”, Tapiero. bitcoin/spot-bitcoin-etf-buy-the-news-event/” target=”_blank” rel=”noopener nofollow”>noted.
At the time of publication, btc was trading at $37,293.
Featured image from Shutterstock, chart from TradingView.com