On January 10, the SEC approved the very first bitcoin spot ETFs, kicking off a whole new way to profit from bitcoin.
These ETFs have been hailed as a game-changer for bitcoin. Now, instead of buying bitcoin through an exchange like Coinbase or Kraken, investors can simply buy an ETF in their brokerage to get exposure to the crypto.
And many anticipated that bitcoin would see a surge of new demand following the SEC’s approval.
But the reality hasn’t been what many crypto fans hoped…
Just take a look at the bitcoin chart below:
Bitcoin peaked right as the announcement hit news headlines… and since then, it has pulled back as much as -20%.
On Tuesday this week, it even dropped below $39,000 – a level not seen since the beginning of last December.
So what happened to bitcoin’s expected rally?
Buy the Rumor, Sell the News
The bitcoin spot ETFs would bring in lots of new bitcoin buyers – or so many claimed in advance of the approval.
After all, this would be easy! All someone would have to do is go to their brokerage and click a button to buy bitcoin through an ETF. No funny passwords to remember or risk that their exchange account would get hacked.
And to be fair, the new ETFs did see record-breaking inflows at their onset.
Yet demand has waned, with daily volumes down -50% over the last five trading days compared to the first five days of the ETFs’ existence.
And in a way, this makes sense.
True crypto enthusiasts are likely to want to hold bitcoin and other altcoins on decentralized exchanges. Their primary motivation for holding bitcoin is that it stands outside the normal financial system – and that gets lost when you turn it into an ETF.
On the flip side, these new spot ETFs also had an impact on an already existing fund – Grayscale Bitcoin Trust (GBTC).
GBTC’s main feature up until recently was that it enabled investors to deposit bitcoin… but they couldn’t withdraw them.
Grayscale was one of the parties that pushed for the SEC to approve spot ETFs. And with that approval in hand, it converted itself into an ETF… and allowed withdrawals.
Some of its shareholders had been holding their bitcoin for a significant period, so it was natural that they would want to take profits on their gains now that they could.
These are just two aspects that show the complexity of the bitcoin market right now.
In the long term, we likely will see more investors dip their toes into the crypto market using these new ETFs. But it’s clearly not happening in a straight line.
And critically, this promises to only be the start of the heightened bitcoin volatility.
According to the Financial Times, we’re on the cusp of seeing new bitcoin ETFs that will offer leveraged exposure to bitcoin.
Here’s how FT put it [emphasis added]:
ProShares… disclosed plans to launch five ETFs, including one that would offer twice the daily exposure to a bitcoin-tracking index and others to provide inverse bitcoin returns, paying out up to double any decline in an underlying index, according to filings with the SEC. The extra leverage in the ETFs — which are not designed to be long-term investments — would amplify swings experienced by the already volatile bitcoin price.
So the arrival of bitcoin ETFs promises to offer more excitement in the near future as well.
And this heightened volatility is making me look forward to putting my own bitcoin strategy into action…
We Like Bitcoin Volatility
As you may have heard me talk about recently, I’ve developed a technique to profit from bitcoin… without buying bitcoin.
I call it bitcoin skimming.
And with bitcoin’s price continuing to fluctuate wildly, it offers a great opportunity to bring home wins… without stressing the ups and downs of holding bitcoin – either on an exchange or in an ETF.
In fact, we use bitcoin’s price action to profit. So we look at volatility like this with eagerness, not trepidation.
And often, we can make even more with skimming than we would by simply buying and holding.
That’s why I held my bitcoin skimming briefing earlier this week. There, I showed traders how they can use this strategy to make gains like $4,898 in as little as a week…
So if you’d like to make sure you can take advantage of my next trade recommendation, be sure to check out the replay.
You can go right here to watch.
But make sure you do so soon.
I don’t know how long this latest spurt of incredible volatility will stay at this level. But I’d encourage you not to miss out while it lasts.
Larry Benedict
Editor, Trading With Larry Benedict