Bitcoin’s New Year Jump Weathers Somber Start In Global Markets

(Bloomberg) -- Bitcoin has sprinted to a more than 6% gain over the first three days of January, bucking a dour start to the year in global markets.

The largest digital asset traded above $45,300 as of 6:50 a.m. Wednesday in London, buoyed by expectations that the US will soon allow the country’s first spot Bitcoin exchange-traded funds. General crypto optimism also encouraged advances in smaller coins such as Solana and Avalanche.

In contrast, US equity futures struggled for traction after a drop in American stocks on Tuesday, the first trading day of 2024 in traditional markets. A dollar index held an advance in a further sign of investor caution.

Bloomberg Intelligence analyst James Seyffart is among those expecting the Securities & Exchange Commission to approve a batch of spot Bitcoin ETF applications by a Jan. 10 deadline. The token is up 172% in the past 12 months on bets that the products will help bolster Bitcoin demand.

The question now is whether the actual green light will become a reason for speculators to bank some profits given that it remains uncertain whether the ETFs will succeed in making Bitcoin more of a mainstream asset.

“We don’t expect mega immediate inflows to the ETFs; hence, it might become categorized as a ‘sell-the-news’ event,” K33 Research analysts Anders Helseth and Vetle Lunde wrote in a note. But they added that the products herald a longer-term structural shift in buyer interest.

K33 estimated there’s still a 5% chance that the SEC “pulls a shocker” and rejects the efforts to launch ETFs that invest directly in Bitcoin. It assigned 75% odds to approval being a “sell-the-news” event, and 20% odds to a further increase in Bitcoin prices due to ETF inflows.

Digital assets have also benefited from wagers that the Federal Reserve will cut interest rates in 2024. The New Year weakness in stocks is partly a reflection of a reassessment of those projections. Crypto prices could wobble if investors continue to pare back expectations of looser monetary policy.  

The escalating cost of bets on rising Bitcoin prices in the futures market is an indication of “speculative excess” emerging in the token’s bull run, Sean Farrell, the head of digital-asset strategy at Fundstrat Global Advisors LLC, wrote in a note.

“Funding costs at these levels normally precede volatility, and the direction of that volatility will depend on near-term flows,” he said.

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