Are the Bitcoin ETFs Priced In?
Can the ETFs be priced in or are there too many variables? Plus an update on the Chinese economic troubles.
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Is ETF Approval Priced In?
Bitcoin has not disappointed this week, up 16% since breaking out on December 1. One of our targets has been hit at $42,000, with the next being $48,000.
This move has prompted discussion of whether or not the ETFs have been priced in. This is an idea from the Efficient Market Hypothesis that all information available to the market is incorporated into the current price. If the ETF approval is priced in, the approval does not necessarily mean a rapid increase in price: It could turn out to be a sell-the-news event. We can estimate the likely inflows and multiplier as follows, but there are still many unknown variables.
In 2021, Bank of America estimated this multiplier to be as high as 107 times. James Van Straten on Twitter, did some quick math to find the multiplier for yesterday’s move, arriving at 114 times.
As for inflows, the largest ETF strict launch ever was Goldman Sachs MarketBeta US 1000 Equity ETF (GUSA) at $1.35 billion on the first day. Several ETF experts, like James Seyffart of Bloomberg Intelligence, think the Bitcoin spot ETF launch could be the largest in history. Galaxy Digital’s excellent research estimates $14 billion to flow into the ETFs in the first year. This would put a one day market cap increase as high as $100-200 billion, and the first year as high as $1.4 trillion. (Note: Galaxy Digital used an 8x multiple based on gold ETF precedent, not the 100x as evidenced by the bitcoin market, so their results are much lower.)
That being said, there are many unknown variables like, will the ETF approval prompt other large buyers. Have applicants already started buying to fulfill early demand? What will the effect of ETF inflows be when compounded by the halving and typical cycle? Will the ETFs even get approved? Rumors are flying just this morning that the current move in bitcoin is not even related to the ETF hype, but is a sovereign buying in size, namely Qatar.