Bitcoin (BTC) along with the broader cryptocurrency market entered a strong retracement on Tuesday, December 26. The Bitcoin price dropped some odd 3%, however, it has contained well above the $42,000 level.
Bitcoin experienced a pullback as traders evaluated potential reactions in the cryptocurrency markets following regulatory decisions on the approval of the first US exchange-traded funds directly investing in the token.
A key consideration is whether the actual approval of these products will trigger profit-taking, aligning with the adage that investors tend to “buy the rumor and sell the news.” In simpler terms, the impact of potential interest in spot Bitcoin ETFs from entities like BlackRock Inc. and Fidelity Investments remains uncertain.
There is a high level of confidence in the market that the U.S. Securities & Exchange Commission (SEC) will approve spot Bitcoin ETFs before January 10, according to Nic Carter, founding partner at Castle Island Management LLC. He mentioned on Bloomberg Television that these funds are expected to attract a broader range of crypto investors in the medium term. However, Carter also highlighted the potential for a “news selling event” in the short term.
Amid the anticipation of early approval of Bitcoin ETFs, BTC whales have started moving their holdings in huge numbers.
As we approach the end of the year, it is advisable to exercise caution and prepare for possible volatility in the coming week. Factors contributing to potential market fluctuations include year-end flows, expiries of options and futures contracts, and the overall market environment characterized by thin liquidity due to the holiday season.
Traders and investors should remain vigilant and adapt their strategies accordingly in light of these considerations. Greg Moritz, co-founder at crypto hedge fund AltTab Capital said:
“The main thing we have our eye on now is the expiration of BTC options on Dec. 29. Usually, when we see a day with such a large amount of options expiring, we expect significant volatility on that day.”
The convergence of Christmas festivities and the annual shift effect has led to a significant decline in implied volatility (IV) across various terms, particularly affecting short-term options set to expire in the final trading days of the year. Despite Bitcoin’s impressive nearly threefold increase in value over the year, IV has not breached the 70% mark, as per data from Greeks.Live.
This marks a noteworthy milestone in the history of the crypto options market and is likely to set a precedent for the future of the cryptocurrency market. The fact that IV has remained below 70% suggests a maturation of Bitcoin derivatives, signaling their increasing prominence as a mainstream investment vehicle, especially with the anticipated approval of cryptocurrency ETFs.
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