The cryptocurrency market is known for volatility, with prices often fluctuating due to news and rumours. A false report about the SEC’s approval of BlackRock’s spot bitcoin ETF caused a temporary spike in Bitcoin’s price. This article explores the impact of Bitcoin ETF rumors on the options market and how they affect the trading activity and investor sentiment.
The Bitcoin ETF Rumor and Price Volatility
The false report of the SEC’s approval of BlackRock’s Bitcoin ETF caused a brief surge in the price of BTC. Within a short period, the cryptocurrency jumped by 10% to reach $30,000 before quickly settling back to $28,000. While the price swing may have been seen as bad optics for the crypto industry, it revealed an interesting aspect of the market: the presence of dry powder waiting for ETF approval.
According to Dick Lo, the founder and CEO of quant-driven crypto trading firm TDX Strategies, the fake news-induced pump provided a glimpse of what could happen if BTC spot ETFs were approved. The fact that Bitcoin managed to maintain its value above $28,000 even after the rumor subsided suggests that the market may be underinvested and potentially ready to start building positions.
The Potential Approval of Bitcoin ETFs
Speculation is rife that the SEC could approve the first U.S.-based spot ETF early next year. This speculation is fueled by the regulator missing a deadline to appeal against a U.S. court verdict that set aside its decision to reject Grayscale Investments’ attempt to convert the Grayscale Bitcoin Trust (GBTC) into a spot ETF. The anticipation of ETF approval has led to increased bullish sentiment in the options market.
With the SEC actively engaging with other ETF issuers and missing the deadline, the odds of spot ETF approvals appear to be near-certain. According to Lo, a batch of spot ETFs may be approved on or before January 10, 2024. This looming approval deadline has created excitement among investors and further fueled the belief that ETF approval is not a matter of “if,” but rather “when.”
The Impact on the Options Market
The options market provides valuable insights into investor sentiment and expectations. The recent Bitcoin ETF rumour has had a noticeable effect on the options market, particularly in terms of call-put skews. Skews measure the cost of call options relative to puts and can indicate a bullish or bearish bias.
The 30- and 60-day call-put skews for Bitcoin options have risen above zero, aligning with the longer-duration skews to signal a bullish bias. This increase in skews suggests that investors are more inclined to purchase call options, which give them the right to buy the underlying asset at a predetermined price within a specific timeframe. The sentiment in the ether options market has also improved, although the bias for calls is still relatively weaker compared to Bitcoin.
Imran Lakha, founder of Options Insights, noted a significant disparity in skew pricing between Bitcoin and Ethereum in the 1-3 month segment of the curve. This disparity indicates market speculation that Bitcoin may experience substantial relative gains, potentially linked to anticipated ETF approval within that time frame.
Conclusion
The recent Bitcoin ETF rumour and subsequent price volatility have shed light on the potential impact of ETF approvals on the cryptocurrency market. Although the rumour turned out to be false, it demonstrated the presence of Bitcoin ETF waiting to enter the market upon approval. Speculation regarding ETF approval has fueled bullish sentiment in the options market, as evidenced by the increase in call-put skews.
