The approval of a spot Bitcoin ETF is currently the biggest price catalyst the market is waiting for. And this has not gone unnoticed by the traditional financial (TradFi) market players. As an analysis by Joshua Lim shows, TradFi could have played a major role in the recent Bitcoin rally to over $38,000.
Lim, a former high-ranking official at Genesis Global Trading and Galaxy Digital, shared an in-depth analysis via X (formerly Twitter), laying bare the strategies and market movements preceding the much-anticipated spot Bitcoin Exchange-Traded Fund (ETF).
TradFi Bets Big On Bitcoin
Lim’s first point focused on the extraordinary volatility in the CME futures market during the November to December roll window. The annualized rates in this period skyrocketed to over 23%, marking it as one of the most lucrative risk-adjusted trades in the Bitcoin realm recently.
Lim’s tweet emphasized, “The CME futures roll traded at dizzying, near-historic wides during last week’s Nov to Dec roll window, touching 23%+ annualized at times.”
He then highlighted the growing involvement of TradFi in the crypto domain, especially in the context of the impending ETF news. Lim pointed out that these players have been building positions over the last few months, evident from the Commitment of Traders data which showed asset managers increasing their length by about $1 billion since the end of September.
Lim further dissected the dynamics of BITO, the rolling CME futures ETF, noting a significant increase of $560 million in its Assets Under Management (AUM) since the end of September. He broke down this increase into $230 million from inflows and the rest from spot appreciation.
On the preference for futures, Lim explained, “Because as a cash-settled product it’s just less regulatory/ operational headache, plus it just flows into their risk systems that can already handle other CME products.” He also noted the impressive performance of Coinbase shares (COIN), another accessible proxy for the TradFi crowd, which registered a remarkable 51% increase since the end of September.
Lim’s analysis included a critical observation about the December premium collapsing on the Monday open, hinting at a cash crunch during Thanksgiving week and repositioning by Bitcoin-native crossover players.
He explained, “That December premium collapsed on Monday open, which says something about cash crunch during Thanksgiving week and the repositioning it took for crypto-native crossover players to allocate more balance sheet to this trade.”
He also connected the dots between these market movements and the fleeting Bitcoin breakout above $38k, which occurred during the CME roll window and was quickly reversed. “In case you hadn’t put the pieces together, last Friday’s beautiful but fleeting breakout above $38k happened during the CME roll window (10 to 11 AM ET) and was subsequently faded right after… alas all good things must come to an end.”
What To Expect Post ETF Approval
In his concluding remarks, Lim speculated on the potential exit strategies of TradFi players around the ETF announcement and the anticipated reactions from retail investors. He suggested, “Tradfi is already long and probably thinking about when to exit this trade. Around the ETF announcement expect retail to pile in.. and expect TradFi guys to exit.”
Alternatively, he suggested, “Or perhaps in true crypto fashion we might get a profit-taking derisking event even in advance of the official ETF approval to inflict max pain on lazy longs, followed by a grind higher into the halving.”
Notably, not everyone is agreeing with the thesis that a spot Bitcoin ETF will be a “sell the news” event. Capriole’s Charles Edwards and Dan Morehead, CEO and founder of Pantera Capital believe that the CME Futures launch and Coinbase’s public listing are not comparable examples.
“This is different. A BlackRock ETF fundamentally changes access to Bitcoin. It will have a huge (positive) impact. […] Once an ETF exists, if you don’t have exposure, you’re effectively short. Buy the rumor, buy the news,” Tapiero noted.
At press time, BTC traded at $37,293.
