Bitcoin ETF Could Crash Crypto Prices

Dan Morehead CEO of Pantera Capital argues that even though the crypto market has entered a new bull cycle, the expected launch of a Bitcoin ETF will damp down the run-up. After a period of temporary instability and fears like the banning of Bitcoin mining in China and debates about the environmental result of Proof-of-Work cryptocurrency, the market is now recording a steady price rise. 

According to CoinGecko, Bitcoin has gained 17.3% in value since the beginning of October. The market value has increased from 57,007 USD on Monday to 62,070 USD today on Saturday 16th October. The week’s rise has led to more investors in the platform. At the moment, the value is 12.6% less than the highest price Bitcoin has ever attained this year. However, the trend can be stopped and directed southwards by the expected launch of Bitcoin ETF.

The Bitcoin ETF

Exchange-traded funds track the price of an underlying asset, in our case, Bitcoin prices. Bitcoin’s first appearance EFT will provide investors access to the world’s largest cryptocurrency (Bitcoin) without requiring them to purchase and keep the asset physically. Doing this will encourage more traders into the cryptocurrency business.

While Bitcoin EFTs have been approved in countries such as Canada, Brazil, and Dubai, the situation is not the same in the United States. The Securities and Exchange Commission of the latter raises concerns about Bitcoin’s volatility and market manipulation dangers.

Many people assume that the release of the Bitcoin ETF in the United States would boost its price; but Morehead warns that it might have the opposite effect. He provides this reasoning because of previous high-profile events that resulted in long negative market cycles, with Bitcoin losing roughly 83 % and 53 % of its value despite investors’ big expectations. 

Might this be a repetition?

According to Pantera CEO, the first scenario was witnessed during the introduction of Bitcoin futures on the Chicago Mercantile Exchange (CME). It resulted in a 2440 % increase in the price of the cryptocurrency until the futures were published. Following that was an 83 % drop in the stock market. 

In the second case, Coinbase went public with a direct listing. The price of Bitcoin had risen by about 822 %t by the time Coinbase’s stock was listed on the Nasdaq exchange. A drop in value occurred, sending the value into a 53 % bear market.

The common factor with the two occurrences and the one at hand right now; is that they all fuelled investors’ hopes about the market value. There might be a rally if the US SEC approves the Bitcoin EFT. As much as we cannot tell with certainty if a plummet is likely to be expected; the two scenarios can be used to prepare. Morehead says that he plans to ‘chip off the table’ a day before the official launch of Bitcoin ETF. 

However, Morehead believes that the market is past such bear markets. He says that even if a bear market were to happen today, it would be shallower.