Violence breaks through a new high of the year, who is an important driver of the recent BTC rally?

Written by Asher Zhang

A “fake news” caused BTC to be rapidly pulled up, and the optimism that should have faded, with the victory of grayscale, Ripple and other SEC lawsuits, these “good news” continue to mobilize market sentiment. So when is a Bitcoin ETF more likely to pass? Referring to the market performance of gold-backed ETFs when they passed, what can investors learn from? Who is Bitcoin driving in the short term? What will absorb from FTX, Celsius, Bitcoin miners, US government sell-offs and potential MT in the long run. What about Gox dumping?

“Roller coaster market”, why the crypto market is turbulent

BTC has recently shown a “roller coaster” market, and its huge volatility has triggered many speculations in the market, and the reasons behind this have also formed a fierce long-short battle.

Bears are just beginning to prevail, as Bitcoin clearly presents a risky asset and the market is generally pessimistic in a geo-tense environment. On October 7, affected by the Palestinian-Israeli conflict, gold opened sharply higher, rising from 1810 to $1855, WIT crude oil futures rose 5%, and the dollar index rose rapidly. Overall, money has poured into safe-haven assets in the short term. Bitcoin, on the other hand, continued to fall, and the performance of “digital gold” was disappointing. Bitcoin’s correlation with risky assets has risen significantly since August, as measured by the MSCI World Index. Under this speculation, the market is mostly pessimistic about its future market.

However, with the emergence of a “fake news”, the market suddenly realized that bitcoin seemed to be getting closer and closer to the “bitcoin spot ETF”, and optimism suddenly increased. Although Bitcoin has a much weaker safe-haven consensus than gold, crude oil and the US dollar; But in contrast, Bitcoin’s opportunities are also great, because Bitcoin is still young compared to these safe-haven assets and has a lot of room for growth, one of which is the approval of spot ETFs. On October 16, Cointelegraph a fake news that “BlackRock’s ETF application was approved” pushed Bitcoin to more than $30,000 in one fell swoop, and market sentiment was fully mobilized.

Interestingly, Bitcoin did not fall from $30,000 to around $27,000 after the fake news was confirmed, and judging from the subsequent Cointelegraph statements, some people seem to think that maybe this is not “out of nowhere”, maybe it will come soon, so many people are still holding on.

Bitcoin ETFs are more likely to pass when

Why is there a growing belief that the passage of a Bitcoin ETF is about to become a reality? This may mainly be related to several recent lawsuits in the crypto industry.

On July 13, the SEC and Ripple Labs case was ruled divergent. Judge Torres ruled that Ripple’s public sale of XRP to exchanges was not illegal, while the sale of XRP to institutions was considered illegal. On October 3, Torres denied the SEC’s appeal request. On October 19, the SEC dropped all charges against Ripple CEO Brad Garlinghouse and co-founder Chris Larsen, canceling the trial scheduled for next year. The SEC and Ripple will meet on the remaining issues in this case — Ripple’s violation of Section 5 XRP agency sales — and agree on a possible briefing schedule with a view to filing it with the court by November 9, 2023, and seeking a briefing schedule from the court if the parties cannot agree.

In August 2023, court documents show that a three-judge appeals panel in Washington overturned the SEC’s decision to block the Grayscale ETF. The court said “the rejection of Grayscale’s proposal was arbitrary and capricious because the SEC failed to explain the different treatment of similar products.” Subsequently, Grayscale issued a statement against the SEC’s decision not to seek appeal, saying: “The Grayscale team is ready to convert GBTC into ETFs once SEC approval is obtained.” On October 19, Grayscale posted on the X platform: “We submitted Form S-3 as part of our efforts to convert GBTC to ETF. We are committed to working closely with the SEC to expedite matters for GBTC investors.” Coinglass data shows that the current negative premium rate of Grayscale Bitcoin Trust (GBTC) has further narrowed to 12.56%. From the data point of view, the market is generally optimistic about the conversion of GBTC to BTC spot ETF.

Stimulated by a series of positive news, the optimism of the market was clearly stimulated. Crypto investor @scottmelker tweeted: JPMorgan analysts predict that the U.S. Securities and Exchange Commission (SEC) may approve multiple spot bitcoin ETFs in the coming months, possibly before the final deadline for Ark 21Shares filings on Jan. 10. The SEC’s decision not to appeal the recent ruling adds to the optimism in the Grayscale case, as Grayscale manages the world’s largest cryptocurrency fund. ETFs cost cheaper to trade than actual cryptocurrencies and could attract a wave of mainstream investment into the crypto market. JPMorgan also suggested that the SEC may approve multiple applications at the same time to promote competition and potentially reduce ETF fees. This will also put pressure on existing funds such as Grayscale to reduce fees.

However, everything is not without variables. Bloomberg ETF analyst Eric Balchunas said in a post on the X platform that courts will mostly only reiterate what they have already said, and courts will not require the SEC to convert GBTC, which is not a court’s power. Thus, even if the grayscale GBTC wins, the SEC controls its fate to some extent.

What will happen after the Bitcoin ETF passes?

Under various favorable judgments of the court, the time for the SEC to pass the Bitcoin ETF is getting closer and closer. So if the SEC passes the Bitcoin ETF, how will the crypto market behave? The following article hopes to provide some useful references by analyzing the price performance of gold when the gold ETF passes.

In March 2003, Australia opened the world’s first gold-backed ETF, and in October 2004, the SEC approved GLD, the first gold-backed ETF in the United States; In November 2004, the US gold ETF GLD officially came into effect and began trading. At that time, the monetary policy of the Federal Reserve was relatively loose, and gold rose sharply after the first gold ETF was passed, which continued until the US ETF began trading, the US gold ETF GLD continued to sprint slightly after the SEC approval, and the US gold ETF fell by about 9% in two months after it began trading, falling below the price at the time of the ETF’s adoption. But with gold-backed ETFs eliminating the need for custody of metals and custody, more traders can easily invest through ETFs, and more money entered the market in the following years, and the financial crisis of 2008 pushed gold to $1,000.

In the short term, the “fake news” event has confirmed the optimistic expectations for the passage of the Bitcoin spot ETF, and this confidence will continue to strengthen with a series of favorable judgments of US courts, which will become the main force driving the growth of Bitcoin. This positive stimulus is expected to diminish somewhat compared to the accommodative environment at the time of gold’s passage, which is currently in the context of tight deflation (which will be at least significantly weaker than the gains at the time of the passage of the Bitcoin futures ETF). Once the Bitcoin spot ETF is clearly approved, the market is expected to have continued upward momentum before it is officially launched; Referring to the trend of gold ETFs, it is expected that after the official launch of the Bitcoin spot ETF, it will also fall to a certain extent, because there is a great desire to sell at this time. But in the long term, Bitcoin spot ETFs are expected to be an important engine to propel Bitcoin towards the next bull run.

Short-term emotional stimulation, or macro fundamentals turn better

Spurred by the news, the short-term sentiment of the market did improve. So, who is mainly driven by this round of “roller coaster” market?

Long money may come from hedge funds. VisionTrack currently tracks 2401 investor entities, of which 1832 are classified as crypto-specific (832 venture capital firms, 712 hedge funds, and 227 platforms). Of the cryptography-private entities, 1609 are active. Data collected in VisionTrack’s Q2 2023 Institutional Crypto Hedge Funds and Risk Report shows that crypto hedge fund strategies flattened by the end of June.

Crypto hedge funds hold $10.07 billion in fund value, $7.34 billion in fundamental investments, $890 million in quantitative investments, and $1.85 billion in market-neutral investments. Basic strategy funds saw the largest year-over-year decrease in median AUM, from $94.9 million to $39.2 million (-58.9%). The median fund value estimate for market-neutral strategies fell 25.6% from the same period last year to $11.7 million. The median fund size for all crypto hedge fund strategies decreased by 43.2% from an estimated $42.2 million at the end of the second quarter of 2022 to $24 million at the end of the second quarter of 2023. @Arthur_0x tweeted: From our conversations with many of our peers, most funds are around 50% or less long, which means that at least $5 billion in liquidity can be deployed to the crypto space in a short period of time, which may be the reason for the recent rally.

The reasons for the short-term bull rise are relatively simple, but what is the impetus for the long-term rise? @Arthur_0x said: It will be interesting to see how the market will absorb data from FTX, Celsius bankruptcy estate, Bitcoin miners, US government sell-offs and potential MT in the medium term. More than $5 billion in structured sell-off streams distributed by Gox. Looking at the data, miner sell-offs have indeed surged as various costs have risen. On October 13, @intotheblock tweeted that Bitcoin miners sold more than 20,000 BTC this week, the highest amount since April. This suggests that miners are taking advantage of rising bitcoin prices to offset operating costs, and while not unusual, it could put significant selling pressure on the market. In addition, according to the minutes of the latest monetary policy meeting released by the Federal Reserve: another interest rate hike in the future may be appropriate; However, with the sudden change in the geopolitical situation, it seems that the Fed’s policy will usher in a lot of uncertainty. Overall, Bitcoin’s long-term rally is still slightly inadequate.

Summary

With a series of crypto positive news, market sentiment has indeed improved somewhat, and it is believed that the time for the passage of Bitcoin spot ETFs is getting closer and closer, which is easy to see from the premium rate of grayscale GBTC. In the short term, the market’s rally is dominated by hedge funds. In the long run, the Bitcoin spot ETF will be an important stimulus, which will make it easier for more people to access Bitcoin; However, long-term more dynamic drivers still need the large-scale application of blockchain technology, and only by giving birth to explosive applications and attracting enough users can its own value form a strong support; If it’s just hype or positive stimulus, sustainability will still be an issue.