The anticipation of Bitcoin ETF approval is generating speculation about a possible “buy the rumor, sell the news” pattern. History points to previous “sell the news” events in Bitcoin, highlighting the importance of the time frame in analysis.
The financial community anxiously awaits the SEC’s determination on Bitcoin ETF filings, prompting speculation about potential market impacts. Analysts and market players are pondering the possibility of a dynamic known as “buy the rumor, sell the news.”
Will a Bitcoin ETF cause significant market movements?
Anticipation is growing in the financial community ahead of the impending SEC decision on several Bitcoin ETF applications , and the possibility of approval looks solid. In this scenario, the question arises of how to position investments strategically. The remarkable rise in Bitcoin’s price over the past year, especially since September 2023, may be the result of competent participants expecting approval.
Given this, the sensible decision may be to sell upon confirmation of approval. The ruling, which is expected between January 8 and 10, allows investors and analysts to assess the potential implications on Bitcoin’s price dynamics.
Buy the rumor Sell the news
The current dynamics reflect a characteristic behavior in financial markets known as “buy the rumor, sell the news.” This widely observed phenomenon manifests itself in rising asset prices ahead of expected events, as markets function as indicators of future price movements.
From a theoretical approach and with sufficient information one would expect relevant announcements, such as the possible approval of the Bitcoin ETF, on be reflected in the price of the asset at the time of the announcement.
However, once the anticipated event materializes and becomes public, some investors may decide to sell to lock in their gains. This behavior can occur even when the news is positive, as the market may have overestimated its impact or simply because investors are looking for profits.
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BITO’s BTC equivalent exposure has quietly pushed to new all-time highs of 41,045 BTC as we all await the ETF announcements.
A peak for eternity, or will “stuff, stuff, shaggy-haired guy in the news” dissuade investors from holding spot ETFs?
I expect the former. pic.twitter.com/ItR2pghs4Y
— Vetle Lunde (@VetleLunde) January 5, 2024
Vetle Lunde, senior analyst at K33 Research, suggests that there is a 75% chance that ETF approval shall is followed by a “sell the news” action .
“All indications are that traders are significantly exposed ahead of the ruling, with derivatives showing significant premiums after three months of continued upward momentum in BTC. The possibility of a ‘sell the news’ action could become a self-fulfilling prophecy as ‘ A not insignificant segment of short-term participants visualizes the opportunity to make a profit.
History offers useful insights
Bitcoin has seen episodes of “selling the news” in its history. In 2017, its value hit $20,000 after the introduction of Bitcoin futures by the CME Group. Similarly, in 2021, Bitcoin peaked at $65,000 after Coinbase’s successful IPO, only to experience a decline in the following months.
In a recent update, Capriole Investments advises caution in the eventual approval of the ETF, predicting “sell the news” style price action in the near term.
“In the most likely scenario of approval in January, the question arises of how much more growth can be expected in the short term after approval.”
On longer time frames, however, the outlook changes, “ETF approval will be a significant catalyst conducive to long-term capital flows into Bitcoin.”
The relevance of the time frame is emphasized in every analysis of Bitcoin’s price performance after approval, with a general consensus that approval over longer time horizons will generate a positive impact on Bitcoin. Michael Anderson of Framework Ventures summed up this view in a recent episode of Hidden Forces.
“There’s certainly a lot of people in the market who recognize the potential of these decisions, the potential of these approvals, and that’s where the upside has been so far. But what really matters is what happens after the approvals and launches. That’s when the real shopping really starts.”
So keep an eye out because the historical pattern of “selling the news” in similar occasions, such as in 2017 and 2021, indicates the possibility of a short-term price correction after approval. While some immediate caution is warranted, it highlights that, in the long-term perspective, ETF approval could catalyze sustained capital flows into Bitcoin.
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