oinonen_t2023-09-25

Front-Running the Spot ETF

The leading cryptocurrency bitcoin has recently faced a new technical correction, however it has still managed to ascend 58 percent after the 2022 bear cycle. Investors are now anticipating two major macro events: The upcoming spot ETF and the halving of spring 2024. Bloomberg's Eric Balchunas recently commented on the ETF's schedule and probabilities, referring to a 75 percent chance for launch in late 2023: “We had a 65 percent chance for Bitcoin ETFs being launched this year, but we updated it to 75 percent. Now we have factored in the Grayscale’s win.” With the ETF seemingly around the corner, front-running it is one of the most obvious trading strategies for late 2023 and early 2024. Bitcoin's fair value (yellow) is currently at $45 159, acting as a reasonable target price. There's a clear post-ETF value gap (white) between the spot price of 26 093 and the fair value, representing a 73 percent growth opportunity. Entailing such a huge momentum, the spot ETF launch might generate a reflexive phenomenon, which rushes investors to buy bitcoin, rapidly uplifting its value. George Soros’ reflexivity theory addresses the impact of positive feedback loops on investor expectations and realities. The disparity between these factors can lead to price trends that diverge significantly from equilibrium prices. In addition to the upcoming ETF approval, bitcoin is being uplifted by the 2024 pre-halving accumulation cycle. These four-year cycles are an essential part of the Bitcoin ecosystem and can be effectively utilized in interpreting price developments. If we use the most recent halving event of 2020 as a reference, bitcoin’s spot price increased by 1263 percent between the halvings of 2016 and 2020. Halvings literally halve the block reward paid to miners, which decreased from 12,5 bitcoin units to 6,25 in 2020. Similarly, the halving event of 2024 will halve the block reward again, reducing it to 3,125.