A green light from the regulators for spot Bitcoin exchange-traded funds (ETFs) is expected to play out in positive ways for the coin. According to Coinbase, the approval of the same has partially been priced in already.
In its latest monthly report, the platform that delivers crypto solutions to global financial services companies talked about how a particular asset (Bitcoin in this case) often stands out on the back of unconfirmed good news. The asset might enjoy certain perks out of it even when the broader market struggles due to adverse macroeconomic developments.
In recent months, the crypto market has experienced a similar situation where Bitcoin has outperformed other cryptocurrencies amid macroeconomic uncertainty. This is partially due to traders pricing a potential approval of spot-based $BTC ETFs, said Coinbase Institutional.
Explaining this, the head of institutional research at Coinbase Institutional, David Duong, said: “We think the divergence in the performance of Bitcoin and other tokens shows that the potential approval of one or more spot Bitcoin ETPs has already been partially priced in. That makes it less clear how much more Bitcoin could outperform if a favorable U.S. Securities and Exchange Commission (SEC) decision occurs.”
Data has revealed that the top coin has gained about 8% since mid-June since the filing of spot-based $BTC ETFs by traditional finance heavyweights like BlackRock. On the flip side, Ether ($ETH) which is the second-largest cryptocurrency by market value and reigns as the altcoin king has lost 7.5% during the same period.
As a result, the macro asset Bitcoin managed to outperform the wider crypto market despite unexpected developments. This includes the term structure of the US Treasury yield curve since mid-June.
Here, Bitcoin rose in price even as the spread between yields on the 10-year and three-month notes (3m10y slope) increased (re-steepened) by nearly 70 basis points to -0.8% since mid-June. When looked at Ether, the altcoin declined, retaining the inverse relationship with the Treasury yield curve’s term structure.
This stood as a sign that factors other than the ETF expectations, have also been at play in the $BTC market.
Duong said: “Crypto prices have had an inverse relationship with changes in the term structure of the U.S. Treasury yield curve since mid-1Q23. But the strength of that relationship is very different for $BTC (vs. the U.S. 3m10y slope) compared to $ETH (vs. the U.S. 3m10y slope).”
Adding on, the analyst pointed out how the 90-day correlation coefficient between Bitcoin and the aforementioned yield spread is 0.45. This stood as “a relatively weak linear relationship between Bitcoin and the recent steepening in the yield curve”. Ether, on the other hand, showed a strong inverse relationship with a correlation coefficient of 0.76. This deviation became visible in mid-June, which was the time when multiple spot Bitcoin exchange-traded product’s (ETPs) applications were being filed in the US.
A recently released report published by crypto services provider Matrixport also talked about how a potential approval by the SEC of spot Bitcoin ETFs in the US could result in inflows which could reach up to $20 to $30 billion.
However, the regulatory watchdog is taking its sweet time in giving out a decision. Back in August, the SEC made an announcement that it was delaying its decision on all new applications until the month of October. It stated that it required more time to thoroughly evaluate the proposals and to ensure a comprehensive review of the proposed regulatory changes and associated concerns.
Coinbase’s analysis also hinted at how Bitcoin stood the possibility of losing its edge over the broader market for some time once the spot-based ETF is approved. A similar movement was observed following the launch of the futures-based ETFs in October 2021.
Duong noted: “That [pricing of spot ETF] makes it less clear how much more Bitcoin could outperform if a favourable U.S. Securities and Exchange Commission SEC decision occurs. That is, in the event of one or more approvals, we believe there could be meaningful net inflows, but these may take time to materialise while markets tend to be impatient.”
