If ETF is approved, it may trigger a "sell-off" turn

Bitcoin rises 16% on hopes of launching first U.S. spot Bitcoin ETF

Chart data suggests Bitcoin rally may face some resistance

Bitcoin has surged in recent days on the prospect of approval of the first U.S. spot bitcoin exchange-traded fund (ETF), but the question now is whether the actual approval of Bitcoin will further spur profit-taking.

Bitcoin, the largest digital asset, rose 16% this week, breaking through $35,000 for the first time since 2022. In contrast, global stock markets have been sluggish due to rising Treasury yields and deepening geopolitical gloom.

Digital asset players believe that spot ETFs planned by asset management giant BlackRock and others will spur wider adoption of bitcoin. However, the timing of approval from the cautious U.S. Securities and Exchange Commission (SEC) remains uncertain. Mainstream demand has also been hit by cryptocurrency crashes such as the bankruptcy of FTX exchange.

Hayden Hughes, co-founder of trading platform Alpha Impact, said, “The market has already digested the approval of a Bitcoin spot ETF. If it is approved, I expect there will be a sell-off.”

The chart data below shows that Bitcoin's rally is overstretched. And options betting shows that some speculators expect Bitcoin to hit a target of $40,000 before the token stagnates. Bitcoin has doubled this year after the 2022 cryptocurrency crash. As of 10:14 am London time on Thursday, October 26, Bitcoin's price stabilized at $34,490, while smaller tokens such as Ethereum, Avalanche and Dogecoin continued to rise.

Technical Testing

Fibonacci ratios, which are often used to help identify market reversals, suggest that Bitcoin’s rebound will face challenges just below the $36,000 area. This area is defined by the 38.2% Fibonacci retracement of Bitcoin’s one-year plunge to November 2022.

Cici Lu McCalman, founder of blockchain consulting firm Venn Link Partners, said she expects a short-term sell-off in Bitcoin if a U.S. spot Bitcoin ETF is approved, but she added that such products would be “bullish” for Bitcoin in the long run.

“Overbought” RSI

Bitcoin’s weekly relative strength index, a momentum indicator, has crossed 70 for the first time since 2021. Readings above 70 are considered “overbought.” This means that the likelihood of a sharp rebound in the near term, such as two separate 10% intraday gains, is low.

“The frenzied speculation about imminent ETF approvals may be a symptom of other more structural bullish factors. Such as the steady cleanup of last year’s industry excesses and a new narrative of inflation hedging given the macro environment,” said Caroline Mauron, co-founder of digital asset derivatives liquidity provider OrBit Markets.

Derivatives Insights

Derivatives data from Deribit, the world's largest cryptocurrency options exchange, shows a sharp concentration of bullish bets on bitcoin, with bets on it reaching $40,000 by the end of the year. That would be 16% higher than current levels.

JPMorgan strategists including Nikolaos Panigirtzoglou wrote in a report that they expect the SEC to approve multiple spot Bitcoin ETFs before the January 10 deadline. The strategists also believe that "any rejection could trigger lawsuits against the SEC and bring more legal troubles to the agency."