BTC breaks through the 40,000 USD mark, what is hidden behind it?

The conversion of Bitcoin trust funds to a spot ETF may have an adverse effect on the BTC price. The market has already reacted to this news, but we cannot ignore the second part of the phenomenon of "buy the rumor, sell the news." The market is likely to sell off when the news is confirmed, leading to a significant drop in the BTC price.

In the coming years, we may see the BTC cycle repeat. It is worth noting that ETFs could have a positive impact on cryptocurrency prices in the long term. However, the conditions to initiate a new bull market are not yet in place, and we should not rule out the possibility that the market may experience a small-scale bear market before that.

Speculators maximize their profit potential by betting on these events. A certain Bitcoin trust has garnered widespread attention since the beginning of this year, attracting billions of dollars in inflows in the secondary OTC market. Therefore, once trading begins, both new and old investors in the fund are eager to cash out, and the price of BTC may experience a significant decline.

Analysts Support Bearish View

The deadline for some ETF applications is early January 2024, which means we may hear more relevant news in December this year.

An analyst from a major bank believes that during the process of a certain Bitcoin trust fund converting to an ETF, there could be "at least $2.7 billion in outflows." It is expected that investor withdrawals may lead to a price drop and return to the cyclical low (this trend will also align with BTC's historical price cycles).

Therefore, the launch of the ETF may not immediately drive up the price of BTC, but instead could become a "sell the news" event, similar to what we witnessed previously with the launch of Bitcoin futures products.

A certain exchange has paved the way for Bitcoin futures trading on Wall Street, and many believe this is the ultimate "sell the news" event. The exchange launched Bitcoin futures in December 2017, coinciding with the peak of the bull market and the beginning of a two-year bear market.

Another trading platform launched Bitcoin futures in September 2019, allowing for cash settlement (unlike the previous BTC-settled futures). However, this was also a "sell the news" event. Bitcoin then entered a small bear market that lasted for several months until the events of March 2020 and the macroeconomic and social conditions (the Federal Reserve's unlimited quantitative easing) provided support for the cryptocurrency market.

Currently, several funds are applying for a Bitcoin spot ETF. Despite facing political pressure, regulators may have to approve it.

Trust funds are significantly discounted

Due to the significant gap between the Bitcoin trust fund and the spot price of Bitcoin (with a discount rate that once fell to 48%), and the increasing likelihood that regulators will accept the conversion of this trust into an ETF, traders bought heavily into the fund in 2023.

Currently, the fund's discount rate is 10% (below the spot price of BTC on the exchange). After approximately $2.5 billion flowed into its only trading market, the discount rate has significantly narrowed.

It is foreseeable that once the ETF starts trading, most of the trading volume will convert into capital outflows. Most speculators see it as an annual trading opportunity and are betting large amounts of money on the potential for the fund to transform into a Bitcoin ETF.

However, the main event of 2024 will be the BTC halving (as well as the speculation surrounding it), and this halving may also be the last one of significant importance, becoming a turning point for the excessive rise in BTC prices.

With the launch of multiple spot ETFs, institutional capital flows may become a decisive factor in driving BTC prices to exceed $100,000 in 2024.

Conclusion

Despite the strong interest in cryptocurrencies from the financial industry, the real-world adoption of cryptocurrencies will be determined by the free market rather than regulatory bodies. The market will define the use cases and advantages of cryptocurrencies, and ultimately, the end users will determine their practicality and value.

The financial community will also consider whether BTC, which has limited scalability, can serve as a reliable store of value or gain meaningful applications through the Lightning Network.

In addition to Bitcoin, the financial industry also recognizes the characteristics and importance of other cryptocurrencies such as Bitcoin Cash, Ethereum, and Litecoin.

Looking ahead, the cryptocurrency market is expected to continue its positive development momentum in the coming year.