A popular market saying advises to buy the rumour and sell the news. Much of the debates prior to the Bitcoin Spot ETF approval centred on the question whether the eventual approval will turn out to be such a sell the news event. With Bitcoin's drop to below $40k, after a brief peak when it touched $50k, the ETF rally has clearly run out of pace. At least in the short-term, the ETF approval turned out to be a sell-the-news event.
Some of the underlying factors behind this drop are simple profit-taking after a strong run-up since October. The conversion of the Grayscale GBTC fund to an ETF also enabled withdrawals of significant amounts of previously locked funds. The FTX estate for example has sold about 1BN worth of Bitcoin that had been sitting in GBTC. Other reasons for the drop may go deeper. The Federal Reserve's Bank Term Funding Program (BTFP), a liquidity program for banks that had been put in place to stop bank runs after the collapse of Silicon Valley Bank in March 2023, is set to expire on March 11th. It is not clear if the facility will be renewed. Meanwhile, the 2-year US Treasury yield started to grow, not drop, indicating that inflation expectations are going up, not down. This might delay rate cuts that markets had expected for March this year.
These concerns existed before the ETF approval as well. But sentiment drives markets. The excitement about the ETF launch, together with greater USD liquidity and an expectation of rate cuts covered up macro nervousness. Houthi rebels in Yemen blocking the Red Sea and doubts around rates and liquidity brought market participants back to earth. We are now feeling the hangover.
This is not a reason to panic. It is simply a time for traders to review their positions and re-position themselves for the things to come. Seasoned readers of this newsletter and every market participant know that sentiments shift quickly. A lot of the underlying reasons for the excitement in Crypto markets are as strong as they were two weeks ago. The most recent run-up happened with very little mainstream retail attention. The Bitcoin halving is approaching.
A similar setup was in place at the start of 2020. The 2019 mini-rally had faded, then the COVID Black Swan hit. What seemed like the end of the world in March 2020 turned into one of the strongest bull markets in recent times. Sentiment can shift quickly and at least we have more ETF rumours to look forward to.
Some of the underlying factors behind this drop are simple profit-taking after a strong run-up since October. The conversion of the Grayscale GBTC fund to an ETF also enabled withdrawals of significant amounts of previously locked funds. The FTX estate for example has sold about 1BN worth of Bitcoin that had been sitting in GBTC. Other reasons for the drop may go deeper. The Federal Reserve's Bank Term Funding Program (BTFP), a liquidity program for banks that had been put in place to stop bank runs after the collapse of Silicon Valley Bank in March 2023, is set to expire on March 11th. It is not clear if the facility will be renewed. Meanwhile, the 2-year US Treasury yield started to grow, not drop, indicating that inflation expectations are going up, not down. This might delay rate cuts that markets had expected for March this year.
These concerns existed before the ETF approval as well. But sentiment drives markets. The excitement about the ETF launch, together with greater USD liquidity and an expectation of rate cuts covered up macro nervousness. Houthi rebels in Yemen blocking the Red Sea and doubts around rates and liquidity brought market participants back to earth. We are now feeling the hangover.
This is not a reason to panic. It is simply a time for traders to review their positions and re-position themselves for the things to come. Seasoned readers of this newsletter and every market participant know that sentiments shift quickly. A lot of the underlying reasons for the excitement in Crypto markets are as strong as they were two weeks ago. The most recent run-up happened with very little mainstream retail attention. The Bitcoin halving is approaching.
A similar setup was in place at the start of 2020. The 2019 mini-rally had faded, then the COVID Black Swan hit. What seemed like the end of the world in March 2020 turned into one of the strongest bull markets in recent times. Sentiment can shift quickly and at least we have more ETF rumours to look forward to.