Q9 Weekly | False Alarm

20 October 2023

· BTC rallies on false rumour of spot ETF approval
· Why do investors care so much about a spot ETF?
· Morgan Stanley says crypto winter could finally be over

The price of Bitcoin briefly jumped to $30k this week on both a false rumour that the SEC had approved BlackRock’s iShares spot Bitcoin ETF, and the very real news that California passed a crypto licensing bill into law. BTC fell to $28.7k once the dust settled and traders realised the news was not true.

Cointelegraph on Tuesday tweeted in error the story about the ETF approval which was then picked up by closely-watched news aggregator accounts. BlackRock’s iShares application is still under review by the SEC the company clarified. However, after the event Mike Novogratz still predicted that the approval will happen this year.

Bitcoin Rises in October

Source: TradingView

CoinGlass data shows that $136mn worth of short positions were liquidated and $51mn in longs were liquidated during the correction.

Large Liquidation Event Following Market Correction

Source: Coinglass

Why are Traders Watching the ETF Approval so Closely?

Crypto markets are in need of fresh capital, and many are still hanging their hats on the idea that mass adoption can still come.

The idea that ETFs will drive institutional adoption is plausible, but is likely overhyped — like every other major crypto event known in advance from Bitcoin halvings every four years to Ethereum’s “Merge,” people have traded the news even though in an efficient market those happenings would be “priced in.”

The desire for a spot market Bitcoin ETF stems from the idea that many people, firms and funds who are interested in taking on exposure to BTC are not yet able to. A traditional financial wrapper for the novel BTC asset class would, therefore, act as a bridge to that sidelined capital. Some estimate billions of dollars could flow into a spot market bitcoin ETF. This is the theory, at least.

In the case of BlackRock’s ETF application, much of the excitement is tied to the fact that it’s the largest asset manager in the world that did the filing and is interested to move deeper into crypto markets. BlackRock’s application alone was validation for the whole crypto industry.

On-chain data provider CryptoQuant says that the approval of a spot Bitcoin ETF by the SEC could boost the price of BTC by 155%.

BTC Rises, Binance Falls

Bitcoin’s dominance has increased significantly since the beginning of October. This uptick in dominance has coincided with major alt-coins struggling against Bitcoin, a trend typically seen during bear markets.

Source: CC Data

However, BTC liquidity has dried up, leading to a 33% decline across selected exchanges.

Source: CC Data

Data from CC Data also shows that Binance’s spot market share has declined for a seventh consecutive month. The drop in volumes was further exacerbated by the halting of zero-fee trading promotion for BTC-TUSD pairs last month. The market share of Binance among spot trading exchanges is currently at 34.3%, the lowest since June 2022.

Source: CC Data

Crypto Spring?

The crypto winter may be over, Morgan Stanley Wealth Management said in a post on its website examining whether the recent bear market in digital assets has run its course.

“Based on current data, signs indicate that crypto winter may be in the past and that crypto spring is likely on the horizon,” the post said.

The investment manager notes that the trough of BTC in previous crypto winters has occurred 12 to 14 months after the peak. The cryptocurrency reached an all-time high of around $68,000 in November 2021 and bottomed out a year later.

“A 50% increase in price from Bitcoin’s low is typically a good sign that the trough has been achieved,” strategist Denny Galindo wrote. The world’s largest cryptocurrency has risen 70% year-to-date and 77% from last year’s lows.

Source: Morgan Stanley

In the News…

· FTX plans to return 90% of customer funds, but there’s a catch

· Gemini, Genesis, DCG sued by New York Attorney General for allegedly defrauding investors

· Binance to stop accepting new users in UK

· Hong Kong crypto exchange OSL weighs wale at HK$1bn valuation

· ‘Crack down on Binance’: Sam Bankman-Fried trial illuminates crypto rivalry

· Account Labs raises $7.7mn for new Google-enabled crypto wallet

· BitGo buys crypto wealth management platform HeightZero

· Grassroots crypto adoption continues in Eastern Europe despite Russia-Ukraine war

· The ‘next wave’ is coming — $15.6 Trillion Wall Street flood that will ‘dwarf’ the last Bitcoin, Ethereum, XRP price bull run revealed

· Mastercard demonstrates interoperable CBDC for Web3 commerce in Australia

· Ferrari to start accepting crypto payments in US, Europe to follow