The highlight is that the cryptocurrency market begins in 2024, with the price of btc rising steadily from $41,000 to around $46,000 as the bitcoin ETF decision looms. Upcoming decisions by the US Securities and Exchange Commission (SEC) on btc spot exchange-traded funds (ETFs) could cause significant fluctuations in the market.
These decisions, expected between January 5 and 10, have kept bitcoin (btc) and ethereum (eth), along with altcoins, on the line with high funding rates indicating a preference for leveraged trading.
crypto Market Braces for bitcoin ETF Decision: Volatility Rising, the New Normal?
According to a report According to options platform Deribit, the current market environment is difficult to read with usual indicators. Still, funding rate readings point to a possible decline.
Anticipation of a price drop following the ETF announcement, a classic “buy the rumor, sell the news” scenario, is in full swing. However, the report states that the continued rise of cryptocurrencies and sustained interest in btc futures trading through the Chicago Mercantile Exchange (CME) highlights a growing enthusiasm for cryptocurrencies from traditional financial institutions.
History suggests that the cryptocurrency market often reacts more negatively to actual product launches than to preliminary approvals. This was evident in events like the launch of btc CME futures and the Coinbase IPO. If market prices are high during the launch of these new financial products, it could trigger a short-term sell-off, especially if they do not meet flow expectations, Deribit stated.
However, any major price correction should be “brief,” given the favorable macroeconomic environment, technical factors, and preparation for the bitcoin halving. In the event of a decline, traders should watch the $40,000, $37,000, and $31,800 levels as potential support.
Volatility in bitcoin and ethereum has been notable in the lead-up to these ETF approvals, with bitcoin's implied volatility rising sharply to around 70, outperforming ethereum. Current volatility levels are likely to decline following the bitcoin ETF decision.
Regarding btc volatility, the report indicated the following predicting a trend for the next bull market:
ethereum, although similar to bitcoin, has not yet reached investment. That said, its long-term volatility is outpacing that of bitcoin, suggesting optimism for ethereum in 2024.
On that note, traders should look for any downward momentum in the eth/btc trading pair. Deribit claims that any decline in the price of eth is a “buying opportunity,” as suggested by the current market structure.
Impact on bitcoin derivatives
The options market's reaction to the upcoming ETF decision is subtle, with bitcoin's buying bias quickly recovering after recent market fluctuations. ethereum maintains a steady buy premium, indicating a marked shift in focus towards ethereum following bitcoin ETF approvals.
Looking at option flows and dealer gamma positioning, bitcoin options volumes have declined, with the market favoring buying put spreads and selling put spreads. In other words, derivatives traders have been increasing their call positions in anticipation of the ETF decision in the US.
Regarding the impact of this decision, Deribit and others have provided their views, but one analyst believes that the long-term effect of a bitcoin spot ETF cannot be measured at this time. Through the social media platform fixed:
It is impossible for something to be “valued” if a huge amount of capital literally does not have access yet. Yes, currently eligible speculators and their available capital can purchase in advance of an event. But that's all that can be done if the pool of participants is about to expand considerably. Note: This does not predict what will happen immediately after the ETF is approved.
Cover image from Unsplash, chart from Tradingview
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