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- The expectation of Bitcoin ETF approval generates speculation about a possible “buy the rumor, sell the news” pattern.
- History suggests 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, giving rise to speculation about potential market impacts. Analysts and market players ponder the possibility of a dynamic known as “buy the rumor, sell the news.”
Will a Bitcoin ETF Trigger Significant Market Moves?
Anticipation is growing in the financial community ahead of the impending SEC ruling on various Bitcoin ETF applications , and the possibility of approval is looking solid. In this scenario, the question arises as to how to strategically position investments. The remarkable rise in Bitcoin’s price over the past year, especially since September 2023, could be the result of skillful participants anticipating approval.
Given this, the sensible decision may be to sell upon confirmation of approval. The ruling, expected between January 8 and 10, has investors and analysts assessing 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 anticipated 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, to 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 to realize profits.
BITO's BTC equivalent exposure has quietly pushed to new all-time highs of 41,045 BTC while we all wait for the ETF verdicts.
A peak for eternity, or will "stuff, things, shaggy hair 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 will be followed by a “sell the news” action .
“All indications are that traders are considerably exposed ahead of the verdict, with derivatives showing significant premiums after three months of continued upside 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 visualize the opportunity to profit.”
History offers useful insights
Bitcoin has witnessed episodes of “selling the news” in its history. In 2017, its value hit $20,000 following the launch of Bitcoin futures by the CME Group. Similarly, in 2021, Bitcoin peaked at $65,000 following Coinbase’s successful IPO, only to experience a decline in subsequent 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 short term.
“In the most likely scenario of approval in January, the question arises as to how much more near-term growth can be anticipated post-approval.”
On longer timeframes, 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 post-approval price performance, with a general consensus that, over longer time horizons, approval will generate a positive impact on Bitcoin. Michael Anderson of Framework Ventures summarized this view in a recent episode of Hidden Forces.
“There are 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 buying really starts.”
So keep an eye out, as the historical pattern of “selling the news” in similar events, such as in 2017 and 2021, suggests the possibility of a near-term price correction following approval. While some caution immediate caution, it is highlighted that, in long-term perspective, ETF approval could catalyze sustained capital flows into Bitcoin.
