Bitcoin’s Buy on Rumor Sell on News Trade is Back

  • As is the case with so many things in the cryptocurrency world, the US$1 billion of inflow into the ProShares Bitcoin Strategy ETF wasn’t enough to defeat the volatility inherent in the trade.
  • But one of the bigger questions traders and investors would no doubt be asking is whether the correction is durable and in fact marks the beginning of a fresh crypto winter.
 
 
In the run-up to a prospective U.S. bitcoin ETF, bullish sentiment was sufficient to hurl the benchmark cryptocurrency to a fresh all-time-high of around US$67,000.
 
But as is the case with so many things in the cryptocurrency world, the US$1 billion of inflow into the ProShares Bitcoin Strategy ETF wasn’t enough to defeat the volatility inherent in the trade.
 
Just as in 2017, when CME Group and the CBoE launched their own cash-settled bitcoin futures product, providing traders with an opportunity to short bitcoin in a meaningful way for the first time, traders took profit faster than you could say the word “moon.”
 
As bitcoin slipped like an old man sliding into a warm bath below US$60,000, profit taking was out in force and the cryptocurrency fell to its lowest intraday price in two weeks, taking down much of the rest of the digital asset universe with it.
 
The benchmark Bloomberg Galaxy Crypto Index (which Novum Alpha uses as its comparison benchmark) and tracks some of the largest digital assets, fell by as much as 7.5% at one point.
 
Given the relentless run-up in bitcoin’s price this past month, a little pullback was in order any way and given the volatile nature of cryptocurrencies, is table stakes.
 
The velocity of the rally from around US$30,000 in July to where bitcoin is today has always meant that a breather was in order.
 
But one of the bigger questions traders and investors would no doubt be asking is whether the correction is durable and in fact marks the beginning of a fresh crypto winter.
 
In 2017, the launch of cash-settled bitcoin futures products by the CBoE and CME Group saw a sharp correction in cryptocurrencies just three months later and ushered in a long crypto winter.
 
Is this time different?
 
In many ways yes. 2017 was far more speculative, with the push in cryptocurrency prices driven primarily by retail investors.
 
And while retail still makes up the bulk of flows today, there are far more institutional investors who have thrown their hat in the ring in a more meaningful way than could ever have been hoped for in 2017.
 
Speculators essentially bought on the rumor (of a U.S. bitcoin ETF) and sold on the news, with total long crypto position liquidations on Wednesday topping some US$700 million, according to data from Bybt.com
 
The market has been (over) leveraged long for a few weeks because of this bitcoin ETF, some profit-taking was genuinely in order.
 

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