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Why the approval of a Bitcoin ETF might lead to profit-taking


Bitcoin has jumped on bets that the first US exchange-traded funds investing directly in the token are set to be approved. The question now is whether an actual green light for the products would spur some profit-taking.

The largest digital asset is up 16% this week and at one point topped $35,000 for the first time since 2022. In contrast, global stocks are wilting under elevated Treasury yields and deepening geopolitical gloom.

Digital-asset fans argue the spot ETFs planned by the likes of BlackRock Inc. will spur wider Bitcoin adoption. But the timing of any approval from a wary Securities and Exchange Commission remains uncertain. Mainstream demand has also been hurt by crypto blowups such as the bankruptcy of the FTX exchange.

“Markets have priced in a Bitcoin spot ETF approval and I expect a sell-the-news event if it’s approved,” said Hayden Hughes, co-founder of social-trading platform Alpha Impact.

Technical chart patterns below hint that the Bitcoin rally has become stretched, while options bets indicate some speculators see a possible runway to $40,000 before the token stalls. Bitcoin was steady at $34,475 as of 7:12 a.m. in London on Thursday after more than doubling this year following a deep rout in 2022. 

TECHNICAL TEST

Fibonacci ratios — proportions found in nature that are also used to help identify market reversals — indicate a zone just below $36,000 poses a challenge for the Bitcoin bounce. The zone is delineated by the 38.2% Fibonacci retracement of Bitcoin’s one-year plunge through November 2022.

Cici Lu McCalman, founder of blockchain adviser Venn Link Partners, said she expects short-term selling if US spot Bitcoin ETFs are approved but added that the products would be “bullish” for the token longer term.

‘OVERBOUGHT’ RSI

Bitcoin’s weekly relative-strength index, a momentum gauge, topped the 70 level for the first time since 2021. A reading above 70 is viewed as “overbought,” suggesting reduced odds for a repeat of recent furious rallies, such as two separate 10% intraday jumps.

“The frenzied speculation about the upcoming ETF approval may be a symptom of other more structural bullish factors, such as the steady clean-up of the previous year’s industry excesses, and a renewed inflation hedge narrative given the macro environment,” said Caroline Mauron, co-founder of digital-asset derivatives liquidity provider OrBit Markets.

DERIVATIVES INSIGHT

Derivatives data from Deribit, the biggest crypto options exchange, show a significant concentration of bullish bets on Bitcoin reaching $40,000 by the end of the year. That would represent a 16% advance from current levels.

JPMorgan Chase & Co. strategists including Nikolaos Panigirtzoglou wrote in a note that they expect the SEC to approve multiple spot Bitcoin ETFs by a Jan. 10 deadline. “Any rejection could trigger lawsuits against the SEC creating more legal troubles for the agency,” they said.

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