Spot Bitcoin ETF verdict less likely a sell-the-news event now: K33

The U.S. Securities and Exchange Commission’s anticipated verdicts on bitcoin spot ETF applications are now less likely to be a sell-the-news event after last week’s leverage shakeout, according to K33 Research.

K33 Senior Analyst Vetle Lunde and Vice President Anders Helseth previously expected traders to realize profits following the announcement with “snowballing long liquidations adding gasoline to the fire.” However, “the liquidation cascade on Jan. 3 drastically improved the state of the market,” and the impact of long liquidations is now less potent, they wrote.

Notional open interest in bitcoin perpetual contracts experienced a 12% decrease between Jan. 2 and Jan. 6, with funding rates moving to a neutral state. Since then, rates have maintained a consistent neutral level, indicating much less froth in the market compared to the previous week, Lunde and Helseth said. 

“Following the deleveraging of last week, the market is more robust to handle profit realization on the ETF announcement,” they added.

Perp open interest. Image: K33 Research.

Meanwhile, open interest on the Chicago Mercantile Exchange hit an all-time high of 131,620 BTC -1.86% ($6.1 billion) yesterday, with professional traders maintaining their short-term optimism, the analysts said.

“CME premiums remain high, near 20%, but have been trading in a far healthier uptrend than what we witnessed on the yearly open,” Lunde and Helset added. “Both premiums and OI will likely be significantly reduced after the ETFs are approved. Rotation from futures-based ETFs, accounting for 43% of CME’s OI, to spot ETFs will be reflected in closed CME longs.”

Bitcoin spot ETF announcement is imminent, and fees would be cheap

A decision on the bitcoin spot ETFs is expected by Jan. 10, Lunde and Helseth reiterated. While consensus already overwhelmingly anticipates approval, the analysts still expect the market to react with volatility upon the final verdict.

“We expect volumes to climb higher over the coming week, but also fast-paced adjustments in traders’ risk profiles. If there is one week in 2024 where you should be particularly tuned in, this is it,” they said.

Multiple firms filed amended S-1 forms this week, just days after exchanges filed amended versions of their 19b-4 forms, in the final step before potential SEC approval of the bitcoin spot ETFs.

Regarding sponsor fees, Bitwise is leading the pack, offering zero fees for the first six months or until the first $1 billion in assets, with its long-term fee at 0.2%, the lowest of the lot. Just behind is Ark/21Shares, after reducing its fee dramatically from 0.8% to 0.25%, including no fees for the first six months or until the ETF reaches $1 billion in assets. VanEck is also offering a fee of 0.25%, and BlackRock has set a competitive sponsor fee of 0.3% for its ETF — reducing it to 0.2% for the first 12 months or until the fund hits $5 billion in assets. Other filers are offering fees between 0.29% and 0.9%.

Grayscale also filed an amended S-3 form as part of its plan to convert its existing bitcoin trust (GBTC) product into an ETF, lowering its fee from 2% to 1.5%. While Grayscale's fees are far higher than the competition, its $27 billion assets under management give it a head start. And with tax considerations for switching to another fund, it may be banking on trying to maintain its existing customers more than attracting new ones.

The low fees of many prospective issuers are likely based on the idea that whoever picks up momentum first might carry it through, with billions of dollars worth of potential inflows anticipated.

“There are two positive effects of the ETFs having low fees,” the K33 analysts said. “First and foremost, it's more attractive to invest with low management fees. Secondly, lower fees reduce BTC selling pressure, as issuers liquidate less BTC to cover fees.”

The SEC's upcoming decision on the approval of the 19b-4 and S-1 forms will determine the start of trading for these ETFs, potentially as soon as the day after approval. Both Valkyrie and VanEck said they expect the ETFs to begin trading on Thursday.