Pricing in a Bitcoin ETF
In a recent interview, analyst Glen Goodman, author of The Crypto Trader, discussed the expectations surrounding a spot Bitcoin exchange-traded fund (ETF) and the potential consequences if the approval is delayed. According to Goodman, the market is eagerly anticipating the US Securities and Exchange (SEC)’s decision on approving a Bitcoin ETF. While many believe that an ETF is imminent, there is also a looming risk if the approval does not come to fruition.
“But there is a bit of a lose-lose situation,” Goodman argued. “While priced in if the approval indeed comes, what happens if it doesn’t?”
Goodman further discussed the influence of SEC Chair Gary Gensler on the outcome of the Bitcoin ETF. Gensler, known for his strict approach towards the crypto industry, has a significant impact on the decision-making process. Goodman emphasized, “Absolutely! That’s the one factor I think that people are forgetting here.” It is crucial not to underestimate Gensler’s skepticism towards cryptocurrency.
Despite this skepticism, there have been recent positive developments that suggest the potential approval of a Bitcoin ETF. Ongoing discussions between SEC officials and ETF hopefuls indicate progress. However, Goodman proposed that Gensler might impose additional requirements on the applicants, causing potential delays. For example, he mentioned the custody and trading separation on exchanges, which were recently discussed by industry experts from digital asset custody firm BitGo.
The Impact of a Lack of Approval
In the event that a Bitcoin ETF approval is not granted in the near future, Goodman expressed concerns about the potential consequences. He highlighted Bitcoin’s historical tendency for steep declines that can erase months of gains. Furthermore, the current futures funding rates on crypto exchanges are at “frothy levels,” indicating that many individuals are borrowing significant amounts of money to invest in Bitcoin. If a market downturn occurs, it could trigger a domino effect of account liquidations due to overleveraging.
“While I personally am not selling,” Goodman stated, “I have ‘lightened up’ my holdings after staying long for a while.” He also noted that the risk-reward ratio is not favorable at the current price level, although he acknowledged that this assessment is based on short-term factors.
Goodman acknowledged that, regardless of short-term challenges, the long-term approval of a Bitcoin ETF would be seen as fantastic news by many experts. Looking ahead, he highlighted other potential drivers for the cryptocurrency market in 2024, such as gaming, artificial intelligence (AI), and decentralized social media.
