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Wall Street's High Stakes Gamble on Bitcoin ETFs: Volatility Warning Issued

Wall Street's High Stakes Gamble on Bitcoin ETFs: Volatility Warning Issued

Jan 4, 2024

Wall Street's High Stakes Gamble on Bitcoin ETFs: Volatility Warning Issued

As the deadline for the SEC's decision on spot Bitcoin ETFs approaches on January 10, traders and institutional investors are holding their breath. Anthony Pompliano of Pomp Investments shared insights on the potential impacts this regulatory move might have on the cryptocurrency market.

Historically, ETF launches have been treated as mundane back-office events, but the anticipation surrounding Bitcoin ETFs is unprecedented. Pompliano argues that this excitement stems from Bitcoin's stellar performance over the past 15 years, an asset that Wall Street has largely been excluded from. However, he cautions that Bitcoin's notorious volatility makes it distinct from traditional assets. This was underscored by a recent billion-dollar wipeout in open interest, highlighting the risks of leverage in such a turbulent market.

via glassnode

Bitcoin's journey since 2017 has seen a remarkable 45-fold increase in value, despite numerous substantial drawdowns. With the potential approval of Bitcoin ETFs, Wall Street anticipates a more formalized entry into the crypto space, with the possibility of other funds allocating up to 15% of their AUM to Bitcoin ETFs.

However, the "greater fool" theory looms large, suggesting prices may rise simply due to the influx of new buyers facilitated by the ETF structure. Pompliano challenges this notion, asserting that Bitcoin's value is underpinned by its status as the strongest computer network, an asset backed by the most valuable commodity to the digital generation – computing power.

Despite the regulated nature of ETFs which may appeal to traditional investors, Pompliano emphasizes that owning a Bitcoin ETF is not equivalent to owning Bitcoin itself. Self-custody remains a unique feature of Bitcoin, offering direct ownership without the need for intermediaries.

The bitcoin market is rife with speculation, including a report from Matrixport suggesting the SEC might reject the spot Bitcoin ETF proposal. Pompliano believes that approval or rejection would both lead to short-term volatility but ultimately would not derail Bitcoin's resilience, citing its recovery following China's mining ban.

Pompliano's final words were a mix of realism and optimism, recognizing Bitcoin's volatility but also its potential for significant growth, influenced by factors such as the upcoming halving and shifts in monetary policy.


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