BitcoinShort
BTC: Buy the Rumor, Sell the News
CME: Micro BTC Futures (MBT1!), Micro ETH Futures (
MET1!)
Last Wednesday, the U.S. Security Exchange Commission (SEC) approved the listing of bitcoin exchange traded funds (ETFs) for the first time. This is a huge victory for the world's largest cryptocurrency and a game-changer for the broader crypto industry.
Immediately after the landslide decision, spot bitcoin price briefly exceeded $49,000, its highest level since April 2022. However, a huge selloff followed. On January 14th, bitcoin is quoted $42,900, which is $6,000 or 12% lower than the peak from just four days ago.
Cathie Wood, whose ARK 21Shares Bitcoin ETF is among the 11 approved ETFs, predicted that Bitcoin prices would reach 600K by 2030. Why do we see it tumble?
Since its inception in January 2009, “Buying the Rumor and Selling the News” has been a recurring theme in bitcoin price trends. We are experiencing one of them now.
• In December 2017, CME Group and CBOE launched Bitcoin futures trading. Spot bitcoin was trading in the $5000 range but shot up to $20,000 leading to the launch. A selloff immediately followed, and bitcoin was back to $9,000 by January 2018.
• In October 2021, the SEC approved the first Bitcoin-futures-linked ETF trading on the NYSE. Market talks on the decision pushed bitcoin to its all-time-high above $65,000. It fell shortly after and was trading back in the $42,000 range by December 2021.
• In 2023, spot bitcoin rose from $16,538 to $42,265, up 156% for the year. Market anticipation of the SEC decision pushed bitcoin 16% higher in the first nine trading days in 2024. The approval, once confirmed, becomes a good time to book profits.
Key Drivers for Bitcoin’s Long-term Rise
For bitcoin, secular long-term bull market and short-term volatility could occur side-by-side. The case for rising bitcoin prices is supported by solid fundamental drivers:
Firstly, there is a limited supply of bitcoins with a total cap of 21 million.
Currently, around 19 million bitcoins have been mined and are in circulation, leaving approximately 2 million left to be mined. This makes bitcoin superior to fiat currencies, whose supply could be increased by central banks, with or without limits.
Secondly, the demand for crypto investment could increase substantially.
With bitcoin now a SEC-regulated investment asset, the biggest hurdle for participation has been removed. Investors may now buy spot bitcoin, bitcoin futures, bitcoin options, and bitcoin ETFs from their brokerage accounts and trade on regulated US Exchanges.
On the first day of trading, 11 ETFs had transactions totaling $4.6 billion. A modest start, but once investors begin to allocate a portion of their asset to cryptos, trading could grow exponentially over time. According to iShares, Equity ETFs had a market size of $5.6 trillion, which is about 12.7% of US equity market in Q3 2023. Recently, PwC estimated that Global Assets under Management sets to rise to $145.4 trillion by 2025. How big the crypto market could become if just 1% of global investment is allocated to Bitcoin?
Relative outperformance of both Bitcoin and Ethereum could speed up the asset rotation. Robinhood Financial just announced that it has made all 11 bitcoin ETFs available in its trading platform, enabling millions of individual investors to buy these funds.
Brief Review: My previous trade ideas on Bitcoin
Last year, I have written three trade ideas on TradingView:
On March 29, 2023, I published this: “Crypto Staged a Strong Comeback in Q1.” At the time, bitcoin was quoted $28,348, up $11,800 or +71.3% year-to-date. The main driver was flight-to-safety when a series of US bank failures shocked the financial markets.
https://www.tradingview.com/chart/MBT1!/4YwrWMK3-BTC-Crypto-Staged-a-Strong-Comeback-in-Q1/
On July 17, 2023, I published a follow-up idea, “Crypto Bull Market Appears to Take Hold.” Bitcoin was closed at $30,146, up 1,798 or +6.3% since the first report.
https://www.tradingview.com/chart/MBT1!/L6Gz5h6S-BTC-Crypto-Bull-Market-Appears-to-Take-Hold/
On October 30, 2023, I published “Cryptos: Great Hedge for Stock Market Decline”, bitcoin was trading at $34,095.
https://www.tradingview.com/chart/MET1!/nQFIFpNg-Cryptos-Great-Hedge-Against-the-St
Past performance is not a reliable indicator of future performance, but bitcoins, as an investment asset, has been through a spectacular year in 2023.
Trading with Micro BTC and ETH Futures
In my opinion, both Bitcoin and Ethereum are set up for a long-term marathon bull run. In the short-term, “Buy the rumor and Sell the news” creates interesting trading opportunities.
As bitcoin is tumbling down after the “News”, it presents bargain buying window for long-term investors. My trading idea is to buy spot bitcoin at low price as a long-term investment and hedge the portfolio with short futures position in the short-term.
CME Group Micro BTC futures (
MBT) provide leverage and capital efficiency. Contract notional is 1/10 of 1 BTC. Initial margin is $1,140. March contract was last settled on $43,690. At current price there is a 3.8 times leverage built in the contract, which is the ratio of 4,369 (1/10 of 1 BTC) divided by 1,140. Hypothetically, if futures moves down 10% to 39,321, the 436.9 price fall in Micro BTC futures would be a 38.3% return, using the $1,140 margin as a cost base.
Meanwhile, the new “Rumor” is that spot Ethereum ETFs will be approved this year. I expect ETH to continue its rise, all the way until prices peaked at actual approval. My trading idea is to buy spot Ethereum as a long-term investment, and “supercharge” the return by adding long futures position as the rumor is playing out.
CME Group Micro Ether futures (
MET) also provide leverage and capital efficiency. Contract notional is 1/10 of 1 ETH. Initial margin is $72. March contract was last settled on $2,614. At current price there is a 3.6 times leverage built in the contract. Hypothetically, if futures price goes up 10% to 2,875.4, the 26.1 price gain would be a 36.3% return.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme/
MBT1!), Micro ETH Futures (MET1!)Last Wednesday, the U.S. Security Exchange Commission (SEC) approved the listing of bitcoin exchange traded funds (ETFs) for the first time. This is a huge victory for the world's largest cryptocurrency and a game-changer for the broader crypto industry.
Immediately after the landslide decision, spot bitcoin price briefly exceeded $49,000, its highest level since April 2022. However, a huge selloff followed. On January 14th, bitcoin is quoted $42,900, which is $6,000 or 12% lower than the peak from just four days ago.
Cathie Wood, whose ARK 21Shares Bitcoin ETF is among the 11 approved ETFs, predicted that Bitcoin prices would reach 600K by 2030. Why do we see it tumble?
Since its inception in January 2009, “Buying the Rumor and Selling the News” has been a recurring theme in bitcoin price trends. We are experiencing one of them now.
• In December 2017, CME Group and CBOE launched Bitcoin futures trading. Spot bitcoin was trading in the $5000 range but shot up to $20,000 leading to the launch. A selloff immediately followed, and bitcoin was back to $9,000 by January 2018.
• In October 2021, the SEC approved the first Bitcoin-futures-linked ETF trading on the NYSE. Market talks on the decision pushed bitcoin to its all-time-high above $65,000. It fell shortly after and was trading back in the $42,000 range by December 2021.
• In 2023, spot bitcoin rose from $16,538 to $42,265, up 156% for the year. Market anticipation of the SEC decision pushed bitcoin 16% higher in the first nine trading days in 2024. The approval, once confirmed, becomes a good time to book profits.
Key Drivers for Bitcoin’s Long-term Rise
For bitcoin, secular long-term bull market and short-term volatility could occur side-by-side. The case for rising bitcoin prices is supported by solid fundamental drivers:
Firstly, there is a limited supply of bitcoins with a total cap of 21 million.
Currently, around 19 million bitcoins have been mined and are in circulation, leaving approximately 2 million left to be mined. This makes bitcoin superior to fiat currencies, whose supply could be increased by central banks, with or without limits.
Secondly, the demand for crypto investment could increase substantially.
With bitcoin now a SEC-regulated investment asset, the biggest hurdle for participation has been removed. Investors may now buy spot bitcoin, bitcoin futures, bitcoin options, and bitcoin ETFs from their brokerage accounts and trade on regulated US Exchanges.
On the first day of trading, 11 ETFs had transactions totaling $4.6 billion. A modest start, but once investors begin to allocate a portion of their asset to cryptos, trading could grow exponentially over time. According to iShares, Equity ETFs had a market size of $5.6 trillion, which is about 12.7% of US equity market in Q3 2023. Recently, PwC estimated that Global Assets under Management sets to rise to $145.4 trillion by 2025. How big the crypto market could become if just 1% of global investment is allocated to Bitcoin?
Relative outperformance of both Bitcoin and Ethereum could speed up the asset rotation. Robinhood Financial just announced that it has made all 11 bitcoin ETFs available in its trading platform, enabling millions of individual investors to buy these funds.
Brief Review: My previous trade ideas on Bitcoin
Last year, I have written three trade ideas on TradingView:
On March 29, 2023, I published this: “Crypto Staged a Strong Comeback in Q1.” At the time, bitcoin was quoted $28,348, up $11,800 or +71.3% year-to-date. The main driver was flight-to-safety when a series of US bank failures shocked the financial markets.
https://www.tradingview.com/chart/MBT1!/4YwrWMK3-BTC-Crypto-Staged-a-Strong-Comeback-in-Q1/
On July 17, 2023, I published a follow-up idea, “Crypto Bull Market Appears to Take Hold.” Bitcoin was closed at $30,146, up 1,798 or +6.3% since the first report.
https://www.tradingview.com/chart/MBT1!/L6Gz5h6S-BTC-Crypto-Bull-Market-Appears-to-Take-Hold/
On October 30, 2023, I published “Cryptos: Great Hedge for Stock Market Decline”, bitcoin was trading at $34,095.
https://www.tradingview.com/chart/MET1!/nQFIFpNg-Cryptos-Great-Hedge-Against-the-St
Past performance is not a reliable indicator of future performance, but bitcoins, as an investment asset, has been through a spectacular year in 2023.
Trading with Micro BTC and ETH Futures
In my opinion, both Bitcoin and Ethereum are set up for a long-term marathon bull run. In the short-term, “Buy the rumor and Sell the news” creates interesting trading opportunities.
As bitcoin is tumbling down after the “News”, it presents bargain buying window for long-term investors. My trading idea is to buy spot bitcoin at low price as a long-term investment and hedge the portfolio with short futures position in the short-term.
CME Group Micro BTC futures (
MBT) provide leverage and capital efficiency. Contract notional is 1/10 of 1 BTC. Initial margin is $1,140. March contract was last settled on $43,690. At current price there is a 3.8 times leverage built in the contract, which is the ratio of 4,369 (1/10 of 1 BTC) divided by 1,140. Hypothetically, if futures moves down 10% to 39,321, the 436.9 price fall in Micro BTC futures would be a 38.3% return, using the $1,140 margin as a cost base.Meanwhile, the new “Rumor” is that spot Ethereum ETFs will be approved this year. I expect ETH to continue its rise, all the way until prices peaked at actual approval. My trading idea is to buy spot Ethereum as a long-term investment, and “supercharge” the return by adding long futures position as the rumor is playing out.
CME Group Micro Ether futures (
MET) also provide leverage and capital efficiency. Contract notional is 1/10 of 1 ETH. Initial margin is $72. March contract was last settled on $2,614. At current price there is a 3.6 times leverage built in the contract. Hypothetically, if futures price goes up 10% to 2,875.4, the 26.1 price gain would be a 36.3% return. Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme/
Jim W. Huang, CFA
jimwenhuang@gmail.com
jimwenhuang@gmail.com
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