Bitcoin ETF: ‘Sell the news’ event or pivotal crypto adoption moment?

What will the approval of a spot Bitcoin ETF mean for BTC’s price in the long term?

The United States Securities and Exchange Commission (SEC) approved the first-ever spot Bitcoin exchange-traded fund (ETF) to trade publicly in the U.S. on Jan. 10. 

In the landmark judgment, the SEC approved the 19b-4 applications from ARK 21Shares, Invesco Galaxy, VanEck, WisdomTree, Fidelity, Valkyrie, BlackRock, Grayscale, Bitwise, Hashdex and Franklin Templeton, allowing their spot Bitcoin (BTC) ETFs to be listed and traded on regulated exchanges. The trading of the ETFs will begin when markets open on Jan. 11.

The approval of the spot Bitcoin ETF paves the way for investors to gain direct exposure to the price of Bitcoin without buying it. Investors would instead buy shares in listed ETFs holding physical Bitcoin as their underlying asset.

Samir Kerbage, chief information officer at Hashdex — one of the asset managers to get SEC approval for its Bitcoin ETF — told Cointelegraph that it is a monumental day in the history of digital assets, and the approval marks the next phase for the industry by allowing U.S. investors to fully participate in the promise of Bitcoin.

“Hashdex is thrilled to offer the Hashdex Bitcoin ETF, in coordination with Tidal, as one of the first regulated U.S. products that will offer investors exposure to spot Bitcoin pricing,” he said.

The race for the spot Bitcoin ETF in the U.S. has been a long one, with several filings and rejections before the new filing cycle began in 2023.

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In the wake of the 2017 bull market, several institutional funds, such as Bitwise, attempted to launch a spot Bitcoin ETF. Bitwise filed for the Bitwise Bitcoin ETF Trust, which was later rejected by the SEC.

Wilshire Phoenix proposed a unique approach, mixing Bitcoin and U.S. Treasurys with its Bitcoin and Treasury Investment Trust. However, the SEC rejected this proposal in February 2020.

The SEC had earlier rejected spot BTC ETF proposals, citing market manipulation concerns and the market’s small size. However, with a significantly larger market size and growing institutional demand, the new cycle of filings in 2023 reignited a sense of optimism among crypto enthusiasts.

Several factors favored a spot BTC ETF approval this time around.

First, the BTC market cap of nearly $1 trillion is significantly bigger, along with a surge in institutional interest.

The world’s largest asset manager, BlackRock, joined the ETF race and filed for a spot Bitcoin ETF with the SEC in June 2023. BlackRock’s entry in the spot Bitcoin ETF race came as a big boost for the crypto community thanks to its status as the world’s largest asset manager — with over $8 trillion in assets under management — and its previous track record with successful ETF approvals.

BlackRock boasts a record of 575 approvals against one ETF rejection in its history, and with the spot BTC ETF approval, the record now stands at 576-1.

BlackRock submitting their ETF application pic.twitter.com/rJNPCXwr0v

— rwlk (@sherlock_hodles) January 10, 2024

The historic day also fell on the anniversary of Bitcoin Running Day, which is a day dedicated to Hal Finney’s historic tweet on Jan. 10, 2009, when he said, “Running bitcoin.” Finney was the first person to download and receive Bitcoin.

Running bitcoin

— halfin (@halfin) January 11, 2009

Bobby Zagotta, U.S. CEO of Bitstamp crypto exchange, called the approval a historic day in Bitcoin’s history. He told Cointelegraph that the ETF will provide a well-known entry point to the world of cryptocurrency for those observing from a distance. 

“It is of utmost importance that the industry collaborates effectively to guarantee that crypto ETFs are equipped with robust safeguards right from the start, aimed at preventing fraud and market manipulation,” he added.

Bitcoin ETF a case of “buy the rumor, sell the news?”

A major point of discussion that has divided the crypto community is the potential impact of the BTC ETF approval on the price of Bitcoin. On the one hand, Bitcoin proponents and enthusiasts believe that the spot ETF will be a major milestone in Bitcoin’s history and might prove to be a bullish event for its price.

On the other hand, several key observers believe it would be a “sell the news” event where approval could lead to short-term sell-offs and a decline in BTC’s price as the ETF news is already priced in.

“Buy the rumor, sell the news” denotes an idea of capitalizing on market movements by opening a position on a rumor and anticipating an announcement that could cause a shift in the markets. Traders will then close their positions once the news has broken, often at a considerable profit. This theory has been propagated by the likes of ARK Invest CEO Cathie Wood.

The price of Bitcoin before and after the approval has remained largely unchanged, moving around the $46,000 mark. Many crypto proponents have noted the BTC price moved more significantly on the fake news of approval on Jan. 9, when it climbed to over $48,000.

Andrey Stoychev, head project manager at crypto brokerage firm Nexo, told Cointelegraph that the event’s magnitude could still take the Bitcoin price much higher, even if the news prompts an initial drop.

“If any parallels are to be drawn from the introduction of gold ETFs in 2013–2014, Bitcoin is bound to reach new all-time highs sooner rather than later. That’s to say that Bitcoin’s immediate price action upon approval doesn’t carry much weight in the long run and is not worth focusing on, as this development is all about the long-term prospects,” Stoychev said.

According to K33 Research senior analyst Vetle Lunde, the fake news on ETF approval has given a glimpse of how the market could possibly react to actual approval news. “The market showed its hands yesterday; the ETF approval rehearsal favors a sell-the-news reaction,” Lunde wrote on X.

The market showed its hands yesterday; the ETF approval rehearsal favors a sell-the-news reaction.

Immediately after the announcement, longs quickly crowded the market, enforcing a whipsaw in the following minutes. BTC was headed lower; the SEC "stepped in" and formed a bottom… pic.twitter.com/beHqe8fyNv

— Vetle Lunde (@VetleLunde) January 10, 2024

Others believe the bullish price rally might begin when U.S. markets open on Jan. 11 and ETFs actually start trading. With the start of the ETF trading, billions could flow into BTC via stock markets, with Bloomberg estimating about $4 billion of inflows to BTC. 

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Ken Timsit, managing director at Cronos Labs, believes that overall, the crypto market is highly driven by the news these days, and the news that has been expected for a while is priced in already. He cited the example of Ethereum’s transition to proof-of-stake and the Bitcoin halving in a few months:

“A possible outcome is that there will be bullish market conditions in the short term, followed by an equally significant correction when major volumes fail to materialize — in other words, heightened volatility in both directions.”

Oliver Linch, CEO and general counsel of crypto exchange Bittrex Global, told Cointelegraph that he doesn’t anticipate a dramatic price surge after spot BTC approval: “I don’t expect we’ll see too dramatic a spike effect, as this has mostly already been priced into markets. I know that might not be music to many traders’ ears, but with the upcoming Bitcoin halving, among other developments, there’s still a chance for Bitcoin to build on its current trajectory regardless of the outcome.”

The approval of a spot Bitcoin ETF has opened a new regulatory-compliant avenue for investors to access the crypto market. Experts expect a massive inflow into these ETFs as they begin trading publicly, marking a watershed moment in Bitcoin history.