It’s been two years since the discussion about a legal Bitcoin ETF (Exchange-Traded Fund) started and the U.S. Security and Exchange Commission rejected the request because of the difficulties that arise when trying to track and regulate the trading of cryptocurrencies. But said discussion has not stopped, as more and more proposals for cryptocurrency-based ETFs have reached the SEC, only for them to be rejected, just like the initial one by the Winklevoss twins, who received a patent for in in May 2018.
Even if the approval for the release of an ETF that encompasses digital assets is still in limbo, the bare mention of the event holds great power in moving the overall market, and here we’ll cover how that works.
What’s a Bitcoin ETF?
A regular ETF is an investment fund that holds a group of different assets and is traded in traditional stock markets. These allow investors to place their money on them and diversify and protect said investment, because if one of the contained assets experiences a sudden loss, the overall value of the ETF is compensated by the other ones.
Knowing this, the initial petition that was presented to the SEC defined a Bitcoin ETF as an investment fund that mirrors the price of the cryptocurrency and that can be traded in regular exchanges.
This would make it easier for traditional investors to enter the crypto market, as they would not need to meet all the security requirements that current cryptocurrency exchanges ask at the time of registration. Moreover, users that are not so keen on transferring their money through a foreign internet platform may find it safer to trust in a locally-traded ETF that behaves exactly like the cryptocurrency.
However, the SEC rejects the proposals under the argument that Bitcoin is too irregular and dependent on foreign trading platforms, that authorizing the trading of an ETF would contradict all the regulations that traditional ETFs need to fulfill before being traded.
Now you might understand how all the market seems on the edge of its seat whenever news portals comment on the SEC vs ETF, and earlier this week we saw a demonstration of how eager the community can be for news about this topic.
The climb of April 2nd
As anyone might has already noticed, the crypto market skyrocketed into it’s largest climb since April 2018, and many have attributed this huge rise in the market to a wave of reports that claimed the SEC had an emergency meeting around midnight on Monday and released a statement approving two applications for Bitcoin ETFs.
However, it was later made clear that this was nothing but an April Fool’s joke that spread across different portals (April Fool’s is celebrated in many countries around the world by playing practical jokes on people on April 1st). But some voices have already spoken against this belief.
There are reports of a “mystery purchase” of synchronized orders across three exchanges (Coinbase, Kraken and Bitstamp) summing up a total of 20,000 BTC, which is worth about $100 million. The magnitude of the purchase might just be enough to pump the market up, but other analysts have different explanations for it.
A tested hypothesis
Back in February 20th, Alex Krüger, renown economist and trader, made a brief analysis on Twitter about certain reasons on why Bitcoin might experience a pump without any apparent explanation, based on market dynamics.
He explained that markets can experience a reverse in three ways: Following capitulation, following a strong positive break, or simply slowly rolling over. He then goes to show that Bitcoin has experienced all of these three aspects in the recent months and takes it as a premonition of how it is able to “fill the gap” any time, without the need of any catalysts.
1/ Bitcoin market update (is the bottom in?)— Alex Krüger (@krugermacro) February 20, 2019
Markets reverse in three ways:
- following capitulation
- following a strong trend-setting upwards break
- by slowly rolling over.
Capitulation makes buying into a reversal "easy". A rolling-over reversal is the toughest to trade.
2/ The $BTC chart has all the components of a bottom.— Alex Krüger (@krugermacro) February 20, 2019
- Capitulation (Nov-Dec)
- Bounced off long term trend measure, twice, on Dec & Feb (200 WMA)
- Broke out from Higher Low in high volume (Now)
A flush down on the last push lower would have increased bottom odds. pic.twitter.com/DIv5gX36wW
Do you think the market itself is responsible for the big climb? Did the mysterious, massive order or an April Fool’s joke have a say in this week’s behavior? So far, it seems like this climb is steady, and the rest of the market seems to follow, so we might be looking at good times ahead.