U.S. regulators have the crypto world on edge, debating the approval of bitcoin exchange-traded funds (ETFs). Derivatives traders are already diving in, expecting the Securities and Exchange Commission to give the green light, potentially sparking a surge in the market.
Open interest in bitcoin futures, reflecting the invested amount, has been climbing steadily and reached a two-year high of $19.2 billion in early December. It currently sits between $17 billion to $18 billion, a significant increase from the $9.5-$14.5 billion range throughout 2023.
“We’re eagerly awaiting the SEC’s decision,” noted analysts at Amberdata. “This event has been priced into the options market for months now, creating a heightened sense of anticipation.”
The journey toward U.S.-listed spot ETFs tied to the volatile bitcoin has been long and rocky. Multiple asset managers have sought permission since 2013, facing SEC rejections due to concerns about market manipulation vulnerability.
However, intensified discussions in 2023 raised hopes of potential ETF launches, fueling excitement among investors both big and small.
Amidst bitcoin’s climb above $45,000 at the start of the year, funding rates rose, indicating a willingness among traders to pay more to sustain long positions. This enthusiasm coincided with a significant rise in the spot price, spurring high premiums for bitcoin futures.
But caution looms. The bullish sentiment surrounding a potential spot ETF approval might backfire if the decision turns negative, triggering a sell-off. Bitcoin’s recent price drop and subsequent liquidations underscore the market’s sensitivity to news and regulatory shifts.
In the options market, at-the-money implied volatility is currently at its highest level in a year, indicating increased uncertainty. Coinglass’ fear & greed index reflects elevated “fear of missing out” sentiment, signaling heightened market anticipation and risk.
