Bitcoin (BTC) will be the protagonist of this week in the financial world. The US Securities and Exchange Commission (SEC) has until Wednesday, January 10, to announce whether it approves or rejects the ETFs of this spot digital currency
If approval is made, it would be a regulatory boost towards bitcoin by the body that supervises the stock market in the main world economic power. In addition, it would open the possibility for BTC to reach more investment portfolios, including those of pension and retirement funds.
But the truth is that nothing is defined, yet. Although there are signs that the SEC's decision will likely be favorable to the approval of ETFs, there is no official confirmation yet. This is why we will analyze the three possible scenarios for the price of bitcoin, in order to show a broad overview of what could happen.
Scenario 1: The News Is “Sell”
There is a well-known saying and strategy in the financial world that says: "buy the rumor and sell the news. " It consists of buying an asset when positive rumors arise about a future event and selling it once the event occurs and becomes news. This tactic is based on the expectation that the price of the asset will rise due to speculation and anticipation, but is likely to decline once the news is confirmed, as investors take profits and speculative interest wanes.
In the context of bitcoin and the potential approval of ETFs, the “sell the news” scenario could occur if investors, having purchased BTC in anticipation of a favorable SEC decision, decide to sell their assets once approval is confirmed. Although the approval is a positive event, the speculative momentum that preceded it may not be sustained, leading to a correction in the price of bitcoin.
Possibly, if a “news sale” scenario occurred, it would not be immediate. As soon as the news of the approval of one or more bitcoin ETFs becomes known, the price would tend to shoot upwards, perhaps to the psychological barrier of $50,000. But this rise may not be sustained over time.
There are many analysts who believe that something like this could happen. For example, this will be the case for the investment and capital management firm, JP Morgan. In mid-December, this company anticipated that the rise in the price of bitcoin as a result of the approval of an ETF would not be immediate nor would it be free of bearish corrections.
Scenario 2: The News Continues to Be Bought
In this scenario, if bitcoin ETFs start trading quickly and are a success in terms of trading volume, ETF-issuing companies will have to buy more bitcoins to support their products. This would increase the demand for BTC in the market.
Given the law of supply and demand, an increase in demand with a relatively fixed supply leads to an increase in price. Therefore, instead of a post-approval sell-off, we could see a continuation of bullish momentum in the price of bitcoin, driven by both institutional demand and general enthusiasm in the market.
This is what analysts at the investment firm, Pantera Capital, believe will happen. In November, in a market report they had said: "The bitcoin ETF is imminent; buy the rumor and buy the news." According to this company, the magnitude of an event such as the approval of a spot bitcoin ETF would have such relevance that it would nullify the old and well-known investment rule of "selling the news."
If this were to happen, bitcoin could advance its upward movement with respect to previous cycles. Perhaps an all-time high would be seen even before the next halving, which is expected in April or May 2024.
Developer and entrepreneur Adam Back, for example, is one of those who believes that bitcoin could reach a new all-time high before the halving. Back even assures that BTC does not need an ETF for this to happen, as he maintains that the characteristics of the digital currency itself are enough to drive its price upward.
Scenario 3: ETFs are Rejected
This scenario would represent a significant setback, especially since a high expectation of approval has been generated. The SEC's refusal could be perceived as a rejection of the integration of bitcoin into the traditional financial system, which would negatively affect the market's perception of its legitimacy and usefulness .
As a result, if bitcoin ETFs are rejected, the price of bitcoin is likely to see a considerable drop, breaking several supports and reaching new lows. This scenario would underline the sensitivity of the bitcoin and cryptocurrency market to regulatory decisions.
It is worth clarifying that this is the least likely scenario. As mentioned above, both the SEC and the companies that filed applications to launch ETFs have given signs that approval would be imminent.
But, in any case, there are those who dare to speculate that a rejection – at least in January – would be possible. This was done last week by the investment firm MatrixPort. The publication of a report in which they predicted (or, rather, assured) that ETFs would be rejected in the coming days, caused the price of bitcoin to plummet for a few hours.
Although it is impossible to make an infallible prediction about how the market will behave, most analysts opt for scenarios 1 or 2. What can be assured with certainty is that they will be days of high volatility for the price of bitcoin. In such a context, it will be essential for each investor to take appropriate risk management measures to avoid capital losses. Perhaps, using the DCA strategy (both to make purchases and to take profits) would be useful for those who wish to take advantage of these price movements, but without being exposed to excessively high risk.
