Is it “buy the rumour, sell the fact” on the US spot Bitcoin ETF?

By Mathieu Ziaei, Portfolio Manager & Risk Officer at Switzerland based and regulated digital asset investment manager Criptonite Asset Management. 

Bitcoin is holding above the $43,000 level, even exceeding $44,000 yesterday, maintaining its ground for the first time in over a year. The rally comes as traders’ bullish view for Bitcoin produced the best November performance since 2020. After the Binance and DOJ settlement, there is hype around the market’s belief that a spot BTC exchange-traded fund (ETF) would be approved in January 2024 and that the ETF will bring significant cash inflows to Bitcoin, thus pushing prices across the crypto market higher.

My personal opinion is that traders are going to front run the ETF with the current price action of Bitcoin. I think that around $48,000 should be the local top for bitcoin on the short term. It’s been a long time since the planets have been aligned this perfectly. With the ETF hype, end of the financial cycle and most of the risks have been eliminated, this leaves room for bitcoin to rally freely.

With rumours of “financial easing,” which typically involves measures taken by central banks or governments to stimulate economic activity by lowering interest rates or implementing other monetary policies. This should encourage investors to take higher risks while investing.

Entering or maintaining a short position (someone expecting prices to fall) at this time could be precarious given the observed shift in market dynamics. Any trader or fund manager that has been holding a short position in digital assets since the beginning of the year would not be in a good position especially in Bitcoin. How would you explain it to your management that you are holding a short? I would find it hard for anyone to justify having a short position on bitcoin now with all the positive news.

Traders have been stunned by FTX, Luna, and Three Arrows, leading to increased apprehension about adopting long positions. However, these unforeseen events, often referred to as Black Swans, have acted as a cleansing force within the crypto industry, creating more bearish sentiment compared to previous times. It is anticipated that this sentiment may reverse once even more euphoria kicks in, likely driven by the approval of a spot Bitcoin ETF in the US, but there is also a high probability that we see a classic “buy the rumour, sell the fact” move in early 2024 leading to a sharp move to the downside.