On a high note, the crypto market starts in 2024, with BTC’s price rising steadily from $41,000 to around $46,000 as the Bitcoin ETF decision looms. The upcoming decisions by the U.S. Securities and Exchange Commission (SEC) on the BTC spot Exchange Traded Funds (ETFs) could lead to significant market fluctuations.
These decisions, expected between January 5th and 10th, have kept Bitcoin (BTC) and Ethereum (ETH), along with altcoins, on a tightrope with high funding rates indicating a preference for leveraged trades.
Crypto Market Braces For Bitcoin ETF Decision: Volatility Spikes The New Normal?
According to a report from options platform Deribit, the current market environment is hard to read with the usual indicators. Still, the readings across funding rates hint at a potential decline.
The anticipation of a price drop following the ETF announcement, a classic ‘buy the rumor, sell the news’ scenario, is in full swing. Nevertheless, the report claims the continued rise in crypto and sustained interest in trading BTC futures via the Chicago Mercantile Exchange (CME) highlights a growing enthusiasm for cryptocurrencies from traditional finance institutions.
History suggests that the crypto market often reacts more negatively to actual product launches than preliminary approvals. This was evident in events like the BTC CME futures launch and the Coinbase IPO. If the market prices are high during the launch of these new financial products, it might trigger a short-term sell-off, especially if they fail to meet flow expectations, Deribit stated.
However, any major price corrections should be “brief,” given the favorable macro environment, technical factors, and the build-up to Bitcoin’s halving. In case of decline, traders should watch the $40,000, $37,000, and $31,800 levels as potential support.
The volatility in Bitcoin and Ethereum has been noteworthy in the run-up to these ETF approvals, with Bitcoin’s implied volatility rising sharply to around 70, outperforming Ethereum. The current volatility levels are likely to decline following the Bitcoin ETF decision.
On the BTC volatility, the report stated the following forecasting a trend for the upcoming bull market:
Ethereum, while similar to Bitcoin, hasn’t yet reached inversion. That said, its long-term volatility is outperforming Bitcoin’s, suggesting optimism for Ethereum in 2024.
In that sense, traders should look for any downside momentum in the ETH/BTC trading pair. Deribit claims that any decrease in the price of ETH is a “buy 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 call skew recovering quickly after recent market fluctuations. Ethereum maintains a consistent call premium, indicating a marked shift in focus towards Ethereum following Bitcoin ETF approvals.
As for option flows and dealer gamma positioning, Bitcoin’s option volumes have decreased, with the market favoring buying in call spreads and selling in put spreads. In other words, derivatives player 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 can’t be measured at the moment. Via the social media platform X, this analyst stated:
It’s impossible for something to be “priced in” if a huge amount of capital literally doesn’t have access yet. Yes, currently eligible speculators and their available capital can buy ahead of an event. But that’s as far as any “pricing in” goes if the pool of participants is about to greatly expand. Note: this does not predict what will happen immediately after ETF approval.
Cover image from Unsplash, chart from Tradingview