A decision is expected on bitcoin spot ETFs between Jan. 8 and Jan. 10, though market-moving news may break earlier, according to K33 Research. Regardless, Senior Analyst Vetle Lunde expects approvals to become a sell-the-news event — or, at least, that's the most likely scenario.

“Everything points towards traders being considerably exposed ahead of the verdict, with derivatives pushing massive premiums following BTC +2.20% ’s last three months of continuous upside momentum,” Lunde wrote in a report. “A sell-the-news event could become a self-fulfilling prophecy as a significant share of short-term market participants has eyeballed the event as an area for profit taking.”

Lunde put the probability of the sell-the-news scenario at 75% versus a 20% chance of approval, followed by significant inflows offsetting selling pressure from shorter-term traders and propelling prices higher. While recent meetings and updated S-1 prospectuses’ between the filers and the Securities and Exchange Commission suggest approval is imminent, Lunde suggested there was still a 5% chance the ETFs would be denied.

A crowded trade

The analyst pointed toward signs of froth in the market, with futures premiums surging to annualized levels of 50% on the Chicago Mercantile Exchange as institutional participants demonstrate expectations of approval by continuing to build long exposure. The premium is the difference between the spot price of an asset and the price of its futures.

CME annualized BTC premiums. Image: K33 Research.

Open interest grew by more than 50,000 BTC over the past three months, likely motivated by front-running bitcoin spot ETF approvals, Lunde added. “At current premiums, maintaining CME exposure involves a 1-2% rolling cost each and every month — an acceptable cost of carry over a medium-term horizon ahead of a pivotal event but unsustainable in the long term, particularly as cheaper exposure alternatives arise,” he said.

On the retail side, funding rates on offshore exchanges are also reaching extremes, hitting an annualized high of 72% amid bitcoin’s latest overnight rally. “Shorts are reluctant to enter the market with the ETF verdict one week away, increasing perp premiums to the spot market and making longs expensive to maintain,” K33 Research said. “Aggressive leverage from longs may set up the market for long squeezes following the ETF verdict.”

Binance BTC/USDT funding rates. Image: K33 Research.

Bitcoin gained more than 5% over the last 24 hours, breaking past $45,000 amid the increasing U.S. spot ETF approval anticipation. Bitcoin is currently trading at $45,269, according to The Block’s price data.

BTC/USD price chart. Image: The Block/TradingView.

Down before up again

The bitcoin spot ETFs have “certainly been front-run,” Lunde said, but whether that has been by too much or too little depends on the flows once the products launch. Though flows from “inferior” products, like futures-based ETFs, are likely, the “critical factor” is the net inflow of new money, which should be at least 50,000 BTC ($2.3 billion) in January, Lunde added.

Lunde expects the current bitcoin price rally to peak on the ETF verdict date due to sizable profit-taking from shorter-term traders and unsustainable premiums. However, longer-term, the analyst sees money flowing through the potential spot ETFs, combined with the supply shock of the Bitcoin halving event in April, compounding favorably as the year progresses.