In a recent analysis, Fred Krueger, former founder and president of Traffic Marketplace, offered a nuanced explanation of the seemingly paradoxical situation in which the price of bitcoin has fallen despite the influx of more than $5 billion in new assets. through exchange-traded funds (ETFs). by BlackRock and Fidelity. Since January 11, the first day of trading for the ten spot ETFs, the price of bitcoin has plummeted 13% (sometimes more than 21%).
Why isn't the price of bitcoin going up?
Krueger's ideas shared Through X (formerly Twitter), he delves into the complex dynamics of the market and its recent interactions with emerging financial instruments. Krueger's analysis begins by highlighting a key strategy adopted by arbitrage traders in late June 2023, in anticipation of the ETF launch.
He stated: “In late June 2023, in anticipation of an ETF, arbitrageurs went long GBTC and short btc futures.” This maneuver, according to Krueger, initially had a negative impact on the price of bitcoin. However, its effects were masked by the overall market rally at the time.
Crucially, this strategy began to close the discount on Grayscale bitcoin Trust (GBTC) and at the same time increased open interest on the Chicago Mercantile Exchange (CME). With the approval of ETFs, these arbitrage traders changed their strategies. Krueger explains: “Once ETFs were approved, arbitrages unraveled the deal. This time they sold GBTC for btc and bought futures.”
This action is described as neutral for the market. The sale of GBTC required an actual sale of bitcoin, which was balanced by the purchase of futures. This dynamic led to a decline in open interest in CME, a trend that was observed and reported.
There was more at stake
Krueger also sheds light on the composition of new ETF demand, noting that “around $1.5 billion of the $5 billion of new ETF demand was in fact recycled from GBTC into tax-neutral accounts, seeking lower rates.” This recycling of funds, while significant, did not represent the entry of new capital into the bitcoin market, but rather a reallocation of existing investments.
The analysis further identifies external market pressures, particularly the $1 billion sale of GBTC by Sam Bankman-Fried (SBF), founder of FTX. Krueger comments: “This sale and the main sale of GBTC falsified the market, so people concluded that the ETF was a failure.”
However, Krueger argues that this view overlooks the reality that the ETFs actually created net new buying pressure of more than $3.5 billion. Despite significant buying activity driven by the new ETFs, the broader market reaction was influenced by a combination of factors, including the FTX sell-off and the liquidation of arbitrage positions.
Krueger concludes his analysis by stating: “The relentless buying of new ETFs was much larger than anyone predicted, plus the FTX sell-off and arbitrage liquidation.” Overall, Krueger is great. bullish:
Over the next 30 to 60 days, there are 20 to 40 trading sessions. I bet this will result in between 4 and 6 billion new dollars in inflows. With a market cap of 850B, it's pretty easy to see that this *could* move the market 50% or as much as 64K. Basically at its highest point.
At the time of publication, btc was trading at $43,054.
Featured image created with DALLE, TradingView.com chart
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