Bitcoin’s ETF momentum is spurring the biggest monthly gains since January
FIFTEEN years after the unofficial launch of Bitcoin, digital asset enthusiasts are touting the cryptocurrency as finally being on the verge of mainstream acceptance.
Bitcoin has rallied about 27 per cent in October, the biggest monthly increase since January, on surging expectations that the US Securities and Exchange Commission (SEC) may soon approve exchange-traded funds (ETFs) that invest directly in the cryptocurrency after more than a decade of deliberation. Bitcoin was trading at around US$34,450 on Tuesday (Oct 31), compared with US$16,540 at the end of last year.
“The month of October was a bullish one for the crypto space,” said Spencer Hallarn, a derivatives trader at crypto investment firm GSR. “An already strong fundamental backdrop was buoyed by ETF chatter and geopolitical tensions.”
Oct 31 is the anniversary of the release of a so-called white paper by the pseudonymous and still-unknown creator, or creators, of Bitcoin, Satoshi Nakamoto, outlining how to transfer value between two people anywhere in the world. Bitcoin began trading in 2009.
The creator or creators made a crucial breakthrough by using a blockchain to record every transaction. It ensured that people could not send fake Bitcoin, or Bitcoin that had already been sent to someone else. It also meant Bitcoin transactions take place independently from involvement – or interference – by typical financial intermediaries like governments, banks or corporations.
Since then, Bitcoin has run through a series of market cycles that has made it one of the best-performing investments of the past decade. Those gains have caught the attention of traditional finance companies, who are now seeking to expand the investor base through ETFs.
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The SEC’s decision earlier this month to not appeal a court ruling that had overturned its rejection of a plan by Grayscale Investments to convert its Bitcoin trust into an ETF. The move is seen by many market observers as the main market catalyst of the past few weeks.
Digital-asset investment products such as Bitcoin futures ETFs saw the largest single week of inflows last week since July of last year, according to crypto asset manager CoinShares. Shares of Grayscale’s GBTC fund rallied, with the trust’s discount to its underlying holdings narrowing significantly. The gap earlier this year stood above per cent45 but has dropped to around 15 per cent, data compiled by Bloomberg show.
The rebound is bringing new life to a market that had been strung by a series of scandals and bankruptcies last year. Volume across the crypto market has rebounded, according to blockchain data firm Kaiko. Bitcoin’s trading volume was the highest in six months when the price crossed US$34,000 last week.
Even so, liquidity remains thin. The decline was dubbed the Alameda Gap in the wake of the collapse last year of Alameda Research, the trading arm of Sam Bankman-Fried’s failed FTX digital empire. The lingering effect is largely a result of the huge losses that market makers incurred after FTX’s meltdown, according to Kaiko.
That has some market participants saying gains were exaggerated and traders should take advantage of the recent big price moves.
I “think it’s good to take some profits here and again once the ETF is approved”, said Jack Tan, chief executive and co-founder of crypto exchange WOO X. “Everyone’s piled onto the ETF trade, so it’s too crowded.”
The funding rate for perpetual swaps, a popular crypto futures product that does not expire, remains “high”, according to crypto market maker QCP Capital, a metric that usually indicates “an exhausted short-term move”.
“The rise in price and volume caused margin pressure for option sellers, leading them to unwind positions, buying back sold call options,” GSR’s Hallarn said. “This in turn has led to a further reflexive move higher.” BLOOMBERG
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