The latest press reports indicate it is a matter of when, and not if, the SEC finally grants for an approval to list a Bitcoin ETF. Social media is abuzz with jubilation; but a degree of caution is warranted.
Introduction of a Bitcoin ETF does not necessarily mean higher prices. Network activity may in fact see a boost, but the support might be erratic at best. This is largely due to the fact that an ETF will appeal to medium and long term investors, as opposed to act to stimulate demand for the coin in the real world i.e. consumer and retail sectors. Another aspect worth remembering is that as it stands there is little factual information about the number of longs vs. shorts in the crypto market – the most popular metric is the Bitfinex long/short ratio as published by TradingView. Introduction of this Bitcoin ETF will open up this particular transparency conundrum (at least on one side of the equation) for hedge funds, and will serve as a tool to judge underlying cryptocurrency market positioning.
Similar information is provided by the CME/CBOE to the CFTF for their regular commitment of cryptocurrency traders (COT) report. Everyone must still remember the implications that the introduction of futures markets had on the asset class, and there is a big risk that the crypto market will get even more fragmented as a result, with larger volume blocks moving to the OTC market as liquidity is gradually sapped away. In addition to that, more ETFs will follow, and many will be leveraged, replicating upside or downside price trends.
The Wall Street is great at financial engineering and innovation but it also knows there is no such thing as a free lunch – and on Wall Street, lunch is usually paid for by the unhedged, under-collateralized and to us exposed retail market.
Thank you for reading,The BeQuant Analytics team