Don’t fade the ETF…

Will the BTC Spot ETF approval be a sell-the-news event? In this flash note, we outline reasons why we don’t believe the ETF news should be faded.

Now that the NYE countdown is behind us, the real countdown (to BTC spot ETFs) begins

• It’s been a while since our last note because we’ve simply been too bloody busy, but our clients have continued to perform well on the back of trading ideas such as the ones from our last note (“Out of the Summer Reverie and into Crypto Vol Trades”)
• With BTC breaking out of its recent trading range, we’ve been hearing growing voices that the approval of BTC spot ETFs will be a sell-the-news event, due to reasons such as “it’s been priced in” or “the initial inflows will be lacklustre and disappointing”
• We find notion that “it’s been priced in” to be somewhat absurd given the lack of precedent for such an event and this uncertainty is exemplified by the wide range of estimates on the projected BTC Spot ETF inflows:

Source: Bitwise Asset Management

• The current BTC market cap is US$885bn. Chainalysis estimates that up to 25% of the supply of BTC has been lost forever. More than 70% of supply is held by long-term holders (defined by Glassnode as wallets that have not transacted in over a year). Thus, in reality, the actual quantity of spot Bitcoin available for purchase is significantly smaller than suggested by its market cap
• A new wave of demand from spot ETFs coming into a scarce supply asset can only mean one thing for its price, the magnitude of which should not be underestimated
• Could the flows be disappointing on Day One? Absolutely, if you are expecting tens of billions of inflows immediately. However, given the heavy resources invested by issuers (including some of the biggest asset managers in the world) to get the Bitcoin spot ETF off the ground, it is unlikely that they will allow it to be a flop.
• In fact, the major issuers will likely be battling it out in the early days to claim supremacy. Bitwise has already announced a $200 million seed investment in its spot ETF (Bitwise says unnamed investor plans to seed $200 million into its Spot Bitcoin ETF), hot on the heels of its television ad campaign (Bitwise Bitcoin Spot ETF Ad)

BTC has broken out on the upside (Source: TradingView)

• With BTC breaking out on the upside this morning, $48.5k is in sight and on news of spot ETF approval we could see a push through $50k
• For those looking for a dump post the news (potentially liquidation hunts of leveraged longs), we may then see a pullback towards $44.8k support and then potentially $42.2k, before we see a reclaim of $48.5k and an acceleration on the upside towards $57.5k
• In this scenario, selling long positions to fade the news would not seem an ideal strategy. For clients who are looking to hedge potential downside risks, we have instead been suggesting low-cost put ratios
• For example, BTC 26-Jan-2024 $41,000/$38,000 1x2 put ratio costs literally peanuts and gives you peace of mind if we do have a temporary visit sub-$40k, whilst allowing you to hold onto your longs
• For those who feel under-allocated (and it would appear many feels this way), we continue to advocate upside call spreads as a cost-effective way to gain exposure
• Popular structures include: March $48,000/$60,000 and June $50,000/$70,000 call spreads
• As always, please check with the desk on latest ideas and pricing

ETH’s day to shine shalln’t be far away (Source: TradingView)

• Relative to BTC, ETH’s performance has been disappointing for long-suffering holders but patience shall be rewarded
• Once the BTC spot ETF approval is done and dusted, attention will quickly shift to ETH spot ETFs

ETH Spot ETF by Q2? (Source: Bloomberg)

• With the mechanics of a crypto ETF more or less sorted out through the BTC ETF approval process, approval of an ETH spot ETF should be relatively straight forward, and could happen as soon as in Q2
• ETH looks likely to retest its recent high of $2,448 and we are looking at short-term targets of $2,579 / $2,873 followed by $3,234
• Again, call spreads have been our preferred play with popular structures being March $2,800/$3,500 and June $3,000/$4,500 call spreads. For those who prefer not to pay premium, zero cost bullish seagulls are also worth a look
• We have also seen decent interest in allocation into alts and clients have thus far done well on bullish structures on ALGO, FIL & FTM, amongst others
• A lot has happened since our last note and if you don’t want to miss out on some great trading ideas in the meantime, speak to the team!

Happy New Year to all and wish you all a healthy, fulfilling and highly profitable 2024!