This post is part of Consensus Magazine’s Trading Week, sponsored by CME.
The launch of a spot bitcoin exchange-traded fund (ETF) from BlackRock is a highly anticipated event in the cryptocurrency industry. It is expected to provide unprecedented institutional access to the crypto market, representing a significant shift from leading banks and promising substantial capital inflows.
These developments will eventually change the industry and kickstart a new market cycle. What we’re seeing in the market at the current moment, however, is still speculation by whales, some traditional firms and industry insiders.
We’re still working with derivatives, not ETFs
While the move towards ETF application approvals is a positive development, the price discovery mechanism for bitcoin [BTC] is typically driven by derivatives like perpetuals. Let’s keep in mind that these are leveraged orders that can be liquidated with the right catalyst, whether on the upside or during a pull-back as traders take profit or leveraged longs get liquidated.
This means that recent price hikes post-announcement weren’t necessarily caused by a fresh inflow of institutional capital — though that will happen eventually — they were actually caused by speculation around ETFs, driven by people already plugged into the crypto space (including whales).
An ETF approval means that there will be an exponential increase in the amount of capital with access to BTC
We should still take this as a sign of institutional interest. It’s not unlikely that the capital that kept BTC outperforming traditional assets came from large institutions or savvy allocators of capital buying ahead of positive ETF news. CME futures are dominating the crypto futures markets now, suggesting that, indeed, it might be more traditional institutions that are speculating.
These are the same players that have entered the room in previous cycles. Bull run or not, this kind of activity is par for the course.
How capital from BTC ETFs will eventually trickle down
We should still pay attention to the possibility of fresh capital coming in. Former BlackRock Managing Director Steven Schoenfield stated at CCData’s Digital Asset Summit in London that an ETF approval could bring $200 billion to bitcoin, while AllianceBernstein, a global asset management company,…
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