Author：PSE Trading Trader @MacroFang

BTC prices still up, despite BlackRock ETF fake-out on Oct 16, 2023

Bitcoin prices rallying hard over the past two weeks (from up 28K to 34K USD) because investors are anticipating a “yes” from the SEC on spot Bitcoin ETFs. This hope is shown in how well Bitcoin is doing compared to ETH. We’re seeing more money going into ETFs that are based on futures, and more people are showing interest in CME futures and call options.

This could bring in more investors who don’t want to deal with the problems of holding onto actual Bitcoins, or the worries about money and risk tied to ETFs or trusts based on futures right now.

Cointelegraph Fake ETF News: but Real Optimism on BTC

Cointelegraph mistakenly announced on Oct 16, 2023, that BlackRock had gotten a green light from the SEC for its Bitcoin ETF. This news sparked a ~10% climb in the value of the cryptocurrency and managed to keep ~3% gain even after the incorrect news was corrected.

From the historical rally, the market would surely be excited by any hint of the SEC’s forthcoming approval, and the price movement is beginning to show this positive anticipation. After the Court mandate was declared, Bitcoin shot up to its mid-2022 levels. Alongside this, GBTC’s discount to NAV has been quickly diminishing. This discount can be viewed as a gauge for the market’s estimated odds of ETF approval, considering shareholders could trade shares for BTC on a 1:1 ratio (which in the equity ETF space has been observed to decrease the discount much closer to 0%).

BTC: Holding on to Sharp Rally after SEC Court Order on Gray Scale

In August, the DC Court of Appeals reversed the SEC’s decision to stop Grayscale Bitcoin Trust (GBTC) from becoming an ETF. The Court called the SEC’s original decision “random and impulsive” and allowed a 45-day period for the SEC to fight back. That period has now officially ended with no action from the SEC, making investors feel more hopeful about a Bitcoin ETF happening soon.

Even after CoinTelegraph’s false news, BTC kept its momentum and even increased after the SEC court order was made. The Court recently gave out a “final directive” that explains what steps the SEC should take concerning Grayscale ETF approval. But it’s important to remember that approval is not guaranteed. There are still legal obstacles in the way and timing is unpredictable. In fact, some ETF applications have been delayed until 2024, and actions against crypto participants are still ongoing. Even so, the chances of a spot Bitcoin ETF getting approved have definitely risen. This idea is now the main expectation for many market players. To remember, the SEC has given a go-ahead to not just Bitcoin futures ETFs, but also levered Bitcoin futures ETFs. Ethereum futures-based ETFs also recently got approved.

BTC Dominance Up: ETP inflows Rising

Bitcoin is gaining a stronger foothold in the market as inflows into ETPs start to increase again. A recurring theme we’ve emphasized this year is Bitcoin’s growing dominance — this means its share of the worldwide crypto market cap. This climbed in March, sparked by some trouble in U.S. regional banking, perhaps as failures of traditional, centralized organizations spurred curiosity in decentralized cryptocurrencies. Bitcoin’s dominance climbed again in June when several big financial institutions, including BlackRock, Invesco, and WisdomTree, started applying for spot Bitcoin ETFs. Around the same time, the SEC gave the thumbs up to the first leveraged Bitcoin futures ETF.

Following a few months of gloomy sentiments (for instance, after the FTX collapse), the regulatory forecast has become more uplifting, resulting in a surge in BTC ETP inflows. Even though a lot of these flows backtracked during the summer, ETPs are beginning to experience inflows again, given the SEC’s failure to challenge the DC Court’s decision in August. From our perspective, it’s improbable that these inflows will decline anytime soon, especially with the increased clarity between the SEC and ETF applicants seeming to be on the cards.

After the SEC’s appeal window shut, there’s been a rise in speculative positions. Graph below shows that the total futures open interest on CME, which has been climbing over the recent months. You can see this mirrored in futures options as well, demonstrated by the boost in call versus put open interest.

The value of Bitcoin is going up, driven by increased speculation that the U.S. is getting closer to approving a spot Bitcoin ETF. We think this might pave the way for more investors who would rather avoid the hassles of managing and securing ‘physical’ (in other words, virtual) assets, and the worries about managing cash and risk linked to futures-oriented ETFs or investment trusts.

BTC vs US Equities: Correlations Break

The pattern of increasing connections between crypto and equity markets is taking a breather. The major decrease in correlations this year began with crypto-equity divergence following Silvergate’s failure. This turmoil in the larger traditional financial system probably sparked more curiosity in the DeFi area. 1-month correlations shot up significantly before calming down once more. Although concerns about broader banking stress have almost entirely faded, 3-month correlations have yet to get anywhere close to the levels we saw at the end of ’22 and beginning of ‘23.

The link between crypto and gold has dropped to almost zero. Thanks to changes in crypto regulation and markets mulling over the Fed’s longer-term higher stance, the connection between crypto and gold took a sharp dive. For the first time since the SVB’s failure, it’s lower than the correlation between crypto and equity. While the crypto-gold correlation is barely holding on in the positive zone, the crypto-equity correlation is still high compared to Q2 and Q3 levels, comfortably above 30%.