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Crypto Vader
7 months ago

Does the Approval of Bitcoin Spot ETFs Hold the Potential for One of the Most Significant Wealth Downturns in Bitcoin's History?

In spite of the optimistic views of Bitcoin enthusiasts who see ETFs as pathways to trillions in new capital, historical trends, a lack of demand, and conventional Wall Street strategies suggest that a colossal bear market may be on the horizon.

While our stance on Bitcoin ETFs has always been contrarian, acknowledging their potential to attract trillions in new inflows and gain SEC approval is crucial for a comprehensive understanding. Examining both sides allows for the development of a strategy that balances low-risk and high-reward, aiming for maximum returns within the current market cycle.

Let's entertain the notion, for a moment, that the media and their undisclosed "sources" are accurate, and the SEC approves Bitcoin Spot ETFs either tomorrow or sometime in the coming week.

There are few, if any, indications that this approval would positively impact Bitcoin. In fact, given the market's tendency to react sharply to news events and other factors we will delve into later, it is more probable that it could trigger a substantial market downturn. Notably, very few analysts closely following the ETF narrative have projected such a positive effect, likely due to their own reservations.

Today, Grayscale, Ark Investments, Valkyrie, and VanEck filed their Form 8-A’s, a significant step toward a potential spot bitcoin exchange-traded fund.

100% of Foreign Bitcoin Spot ETFs Failed To gauge the potential performance of a Spot ETF, it is prudent to sidestep the speculative claims from maximalists and Bitcoin enthusiasts, focusing instead on real-world examples.

My research into other ETF approvals for Bitcoin yielded no instances of successful performance. For instance, the Jacobi Bitcoin ETF in Europe, launched on November 2nd, has encountered an unexpectedly subdued response. With a total trading volume of just $1.7 million since its inception and minimal engagement from the 750 million Europeans with access to this Spot ETF, its performance can be described as lackluster at best. Only one person has traded it within the last 2 months. Ouch!

Canada has hosted five Bitcoin spot ETFs for over two years now, launched in 2021. Despite being a prominent narrative for Bitcoiners, the market experienced a significant drop after the initial launch, a trend we will discuss further. This raises pertinent questions about the potential success of a Bitcoin ETF in the U.S. market. If Bitcoin Spot ETFs have failed in every other country where approved, what assurance is there that they would succeed in the U.S.?

While BlackRock and Fidelity may be larger firms with more clients, the multiplication of the volume of existing European ETFs may still be minimal.

Upon the realization of low demand and the absence of active narratives fueling price increases, a substantial sell-off is likely. This crash may be historic, given the false narrative of "institutional adoption" being the largest narrative pushed by Bitcoiners. Once this narrative wanes, it cannot be replicated. No other narrative can match it unless, perhaps, claims of U.S. government adoption surface.

Mirroring 2017 and 2021 Peaks An often-overlooked aspect is how closely this story mirrors events at the peak of the Bitcoin market cycle in December 2017 and October 2021.

In 2021, headlines similar to those today emerged as Valkyrie, ProShares, VanEck, and others filed Form 8-A with the SEC, signaling imminent approval. This marked one of the final stages in the application process.

BTC Futures officially launched on Nasdaq in late October, and in under two weeks, the Bitcoin market reached its peak, initiating its longest bear market as it plunged from $65,000 to under $16,000.

Bitcoin Futures ETFs were touted as a massive bullish trigger, but they ended up popping the bubble. It was a typical "sell-the-news" event, where hype inflated the bubble, but once fresh money ceased flowing in due to a lack of new narratives, the market dried up, resulting in a significant drop.

This isn't the first time Wall Street products have led to a massive downturn. The launch of the first-ever Bitcoin Futures in December 2017 coincided with the market's exact peak.

Having experienced the events of 2017 firsthand, I can attest that the parallels to the current situation are striking. In 2017, everyone went all-in at the top, FOMO was rampant, and there was widespread optimism about how this event would be insanely bullish, propelling prices to $1 million or higher.

The day they launched marked Bitcoin's all-time highs, and from there, a downward trend ensued for the next year, with prices plummeting from over $18,000 to under $3,000. It was the opposite of what everyone on CT predicted.

I would be very cautious and pragmatic with this ETFs approval hype buzzing in the air lately. Are you?