Bitcoin drops as market anticipates SEC decision on spot ETFs

Bitcoin experienced a decline on Friday, reflecting the broader sentiment in the cryptocurrency market as participants anxiously awaited updates from the Securities and Exchange Commission (SEC) concerning its ongoing review of more than a dozen applications for spot Exchange-Traded Funds (ETFs). The world’s leading cryptocurrency, with the highest market capitalization, witnessed a 1.6% drop, bringing its price to $43,442 at 10:57 a.m. ET.

Bitcoin drops as market anticipates SEC decision on spot ETFs

Despite a momentary pullback earlier in the week, André Dragosch, the Head of Research at ETC Group, expressed confidence in the potential approval of a spot Bitcoin ETF in January. Dragosch highlighted ongoing filings from multiple applicants, asserting that there has been no substantial shift in investor expectations and, if anything, additional evidence has emerged favoring approval.

Notably, on Thursday, significant players in the crypto space, including Grayscale, Ark Investments, Valkyrie, and VanEck, filed new Form 8-As, signaling continued progress and commitment toward potential approval. However, the SEC has not provided clarity on when a decision regarding a spot Bitcoin fund might be reached. The situation remains dynamic as the market closely watches for developments in the regulatory landscape.

The gap between GBTC’s market price and Net Asset Value (NAV) shows a reduction

Dragosch highlighted a noteworthy development in the past week—the sharp narrowing of the Grayscale Bitcoin Trust (GBTC) discount to its net asset value (NAV). This metric, measuring the market price of each share against the value of the Bitcoin it represents, has seen a substantial reduction. The diminishing discount implies growing investor confidence in Grayscale’s ability to transition the trust into an Exchange-Traded Fund (ETF) and eliminate the restrictions that historically kept the discount at higher levels.

According to YCharts data, the discount reached its lowest point in weeks, closing at -5.75% by the end of the market day on Thursday. The Grayscale Bitcoin Trust typically trades at a discount because its shares cannot be currently redeemed for the underlying asset. Shareholders seeking an exit have no option other than selling their shares to potential buyers. It is important to note that historically, the trust traded at a premium until the cryptocurrency credit crunch experienced in 2021.

Dragosch suggested that the further narrowing of the Grayscale Bitcoin Trust discount implies a probability of approximately 92% for the approval of a spot Bitcoin ETF. The analyst pointed to other supporting factors that contribute to a positive outlook regarding the potential approval of a spot Bitcoin ETF later in the month. This evolving landscape is being closely monitored as investors gauge the dynamics of the cryptocurrency market and regulatory developments.

The Cryptoasset Market Continues to Experience Positive Sentiment

According to Dragosch, who oversees the Cryptoasset Sentiment Index (CSI) at ETC Group, the index continues to reflect elevated levels of sentiment, persisting in a positive direction even in the aftermath of Wednesday’s Bitcoin market sell-off. Over the past few weeks, the CSI has demonstrated an upward trajectory, transitioning from a negative reading to its current position, just below 1.

“Our in-house CSI has recently picked up again and currently signals a positive sentiment, as at the moment, 12 out of 15 indicators are above their short-term trend,” highlighted Dragosch. He emphasized notable reversals to the upside in metrics such as the BTC put-call volume ratio and BTC exchange inflows compared to the preceding week.

Adding to the perspective, Bittrex Global CEO Oliver Linch shared his insights in an email to The Block, noting that the approval of a spot Bitcoin ETF is already largely factored into the markets. Linch suggested that while the immediate impact of approval might not be as dramatic as some anticipate, the combination of approval and the influence of the Bitcoin Halving could accumulate to contribute significantly to a dynamic and flourishing 2024.