Traders are considering “selling the truth” after the introduction of Bitcoin ETF

Wall Street opened its doors to its first Bitcoin Exchange Traded Fund (ETF) on October 19 with the listing of ProShares Bitcoin Strategy (BITO) on the New York Stock Exchange. The fund attracted over $ 1 billion in trading volume on day one, while BTC price rose to a new record high of $ 67,000.

But this ATH didn’t last long. Bitcoin price has corrected 9% since then and is trading at $ 61,136 at press time, fueling fears of a sell-off that often comes after major crypto-derivative products are launched on Wall Street.

BTC price 4-hour chart | Source: TradingView

Bitcoin Futures ETF is so popular that it breaks futures limits

The first US Bitcoin ETF is quickly approaching the limit of the number of futures contracts allowed.

Just days after launch, the ProShares Bitcoin Strategy ETF (BITO) has nearly 1,900 contracts for October, and CME is capping the number of contracts for the spot month to 2,000.

After 2 days of trading, the fund had more than $ 1 billion under management.

The Bitcoin Futures ETF has also amassed 1,400 November contracts to avoid a limit violation, but given its unprecedented starting volume, BITO could soon reach a maximum total position of 5,000 contracts.

Bloomberg Senior ETF Analyst Eric Balchunas tweet:

“While the limits are being raised towards the end of October and our futures expert believes they will be raised again if necessary, it’s still more than a week.”

In addition, competing products such as the Bitcoin Strategy ETF from Valkyrie and VanEck will be presented, which could reduce the demand for BITO.

One solution to avoid exceeding the cap would be to ask BITO to split its holdings into longer-term contracts, but that risks expanding the fund against Bitcoin’s performance.

“The bottom line is that the ETF will suffer significant potential tracking errors relative to Bitcoin’s spot price. The ETF is being forced to hit higher and higher bitcoin arbitrage as it continues to move along the futures curve, ”warned The ETF Store President Nate Geraci.

“The unprecedented initial volume in BITO is making it roll downhill like a snowball as liquidity and assets bring more liquidity and assets,” commented Eric Balchunas, adding that the driving force behind the ProShares fund will be hard to stop.

follow Balchunas, The success of BITO and the “clear question of the viability of futures” could lead the SEC to accelerate the approval of spot Bitcoin ETFs.

“That will definitely slow down BITO and reduce the demand for futures.”

Analysts predict BTC correction much as

Nunya Bizniz, an independent market analyst, has repeat 2 big events: the listing of the first Bitcoin futures contract on the Chicago Mercantile Exchange (CME) and the launch of Coinbase’s cryptocurrency trading service (COIN) on the Nasdaq exchange.

Notable posting activity by Wall Street coincides with the peak of the spot Bitcoin price | Source: TradingView

More specifically, CME launched its Bitcoin futures product on December 18, 2017, the same day the price soared to a then record high of around $ 20,000. But the event also marked the start of one of the longest downtrends, bottoming around $ 3,200 12 months later.

COIN also started on Wall Street on April 4th, 2021, at the same time as Bitcoin rose to a new all-time high of around USD 65,000 just 10 days later. However, the upward move was faced with a sharp sell-off that caused BTC to correct as low as $ 28,800.

Hence the ProShares Bitcoin ETF recently Bizniz and many other analysts worry about the possibility of a “buy the rumor, sell the truth”. For example, analyst Lark Davis said “wouldn’t be surprised” if bitcoin prices fell after the ProShares ETF was launched, as it did after the CME bitcoin futures launch.

“CME Bitcoin Futures: Announced October 31, 2017. BTC is up 224%. Launched on December 18, the day BTC hit a market high of 2017, it wouldn’t be a shock if an ETF hits the market just like that. Buy rumors, sell facts.

The source: Lark Davis

Additionally, Pantera Capital has CEO and Co-Chief Investment Officer Dan Morehead To write in a press release earlier this month that “it could take profits before launching a Bitcoin ETF”.

Impressive start for Bitcoin ETF

Despite the historic downtrend associated with the famous Wall Street crypto listing, some analysts believe that the impressive launch of the Bitcoin ETF will limit the downward movement in the BTC market.

Todd Rosenbluth, Head of ETF and Mutual Fund Research at CFRA, speak The $ 1 billion launch of ProShare is “a sign of some catching up to do” for traditional financial firms looking to be part of the burgeoning crypto industry.

JPMorgan Chase added that retailers only accounted for 12-15% of net inflows into BITO for the first two days of trading.

This shows a significant institutional interest in a Bitcoin ETF, with the open interest (open interest) of Bitcoin futures with cash settlement having risen to 79% to date and the premium on the contract having increased. Negative July CME futures were up over 16% earlier this week.