Bitcoin ETF Positioning

Key Insights

• CME Bitcoin Futures' Open Interest rose from $2 billion this September to $6.1 billion, showcasing the heightened institutional bidding on Bitcoin.
• The aggregate open interest of Bitcoin options increased from $9 billion to $17 billion in Q4 2023.
• The fact that open interest nearly doubled in Q4 and has now reverted to levels seen before indicates that a considerable portion of the positions established in Q4 have expired. This suggests that the initial capital flows, which significantly boosted BTC prices, have been primarily unwound, leading to profit-taking.

Despite widespread speculation and fake headlines, the potential approval of a spot Bitcoin ETF is near. With the deadline set for January 10, much of the debate centers not on the approval but on the likely price movements following the decision.

Historically, there's a tendency for the price to dip in the interim between an ETF's approval and its trading launch. Drawing parallels from the historical listing of the Gold ETF and considering market liquidity trends, there's a possibility that Bitcoin's price may decline following the (potential) ETF approval but experience substantial inflows and recovery post-launch. Firms will be ultra-competitive for AUM, and fees ranging from 0.2% to 1.5% showcase the latent demand for a spot ETF.

Regarding previous Bitcoin institutional products, the ProShares Futures ETF notably created a market top in 2021. Other TradFi instruments witnessed a similar pattern.