Evidence of Greater Traditional Finance Participation in Bitcoin

Last week, Bitcoin (BTC) closed at around $37,000, up by 5.9% compared to the previous week’s closing value of $35,000. The week showcased robust price action, witnessing BTC’s fluctuations with consecutive daily price increases from Monday to Friday. The highest trading price was observed on Thursday, nearly reaching $38,000. Following this peak, the price experienced a slight dip, stabilizing around $37,000 from Friday until the week’s end.

BTC dominance, measuring Bitcoin’s market capitalization against the total digital asset market, decreased for the second consecutive week, settling at approximately 52.3%. This represents a 0.7% reduction compared to the preceding week, emphasizing the ongoing dispersion of liquidity among more speculative assets—a characteristic of a phase where investors express confidence and trust in the market, engaging in riskier trades.

Trading activity has continued to surge, with the daily cumulative volume on centralized exchanges, calculated on a 7-day moving average, reaching $31.4 billion. This figure, the highest since the end of March, reaffirms that the recent uptrend is driven by robust trading activity.

A noteworthy aspect is the substantial involvement of traditional finance in the recent uptrend. For the first time, the BTC open interest on Chicago Mercantile Exchange (CME) exceeded 100,000 contracts, surpassing Binance and becoming the leading venue in terms of open interest for BTC. This strong presence of traditional finance investors is also evident in the narrowing discount of the Grayscale Bitcoin Trust (GBTC), currently at 10.3%, the lowest level recorded since August 2021.

The increased traditional finance activity associated with BTC underscores the confidence that market investors currently hold regarding a future BTC Spot ETF approval. It is important to note that the first final deadline for a decision from the SEC is scheduled for January 10, 2024, concerning the 21Shares BTC Spot filing. Most likely, the SEC will make a definitive decision—approval or denial—before this date, approving or denying all the filings, to avoid providing any issuer with a first-mover advantage. Furthermore, there is a continuous stream of filings for digital asset spot ETFs, with recent news revealing Blackrock’s submission for an ETH Spot ETF, following Grayscale’s decision to file for the conversion of the Ethereum Grayscale Trust (ETHE) into an ETH Spot ETF a few weeks ago.

The surge in price and trading activity, particularly through traditional finance channels, coupled with the consistent decrease in GBTC discount and the notable net inflow observed in ETPs with digital assets as underlying, suggests that market investors are placing their bets on an approval. Securing approval from the SEC would likely draw significant investments from traditional finance, ushering in a fresh influx of investors that could fortify and elevate digital assets to a more recognized asset class. Conversely, a rejection would probably trigger a short-term downturn, given the prevailing expectations favouring approval and the subsequent positioning of market participants heavily influenced by this anticipation.