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Market Wrap Year-End Review: Bitcoin ETF Rally Proved Short-Lived, and $100K Dreams Faded

source-logo  coindesk.com 30 December 2021 22:22, UTC

Hi, Market Wrap readers! During the final two weeks of 2021, we’re using this space to recap the year’s most dramatic moments in cryptocurrency markets – and highlight key lessons from this fast-evolving corner of global finance. Over a series of eight posts that started on Dec. 20 and ends today, we recapped what shook crypto markets this year. (Please scroll down for today’s crypto prices and the latest headlines.)

On Wednesday, we walked through the events leading up to bitcoin’s rise from $30,000 to $50,000. El Salvador’s decision to adopt BTC as legal tender appeared to have been priced in from June, and buyers started to take some profits when the Central American country’s law went into effect in September. During that time, bitcoin and stocks began to fall as concerns about China’s property debt risk lingered.

But the September dip didn’t last long. The market got a fresh jolt of enthusiasm when the first U.S. bitcoin exchange-traded fund – a bitcoin futures ETF, that is – launched in the fourth quarter. Bitcoin climbed from $40,000 toward $65,000 in October, spurring visions of $100,000 by the end of the year. It was not to be: The rally fizzled, bitcoin’s notorious volatility returned, and the six-figure price prediction proved wildly optimistic.

The first U.S. bitcoin-linked ETF

After months of delays, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler announced in August his preference for a bitcoin futures-based exchange-traded fund. Traders became hopeful that the SEC would approve a bitcoin-linked ETF in October.

Lurking behind those hopes was the belief that many investors in traditional markets wanted to bet on bitcoin but lacked the technological setup or know-how to do so; an ETF would let them buy into bitcoin with the ease of buying a stock in an online brokerage account.

For years, crypto industry executives had speculated that the SEC’s approval of a bitcoin ETF – denied multiple times under former SEC Chairman Jay Clayton – might finally bring about the perceived holy grail of “institutional adoption” of the cryptocurrency.

But not all bitcoin-related ETFs are created the same: A bitcoin futures ETF is backed by futures contracts such as those traded on the Chicago Mercantile Exchange. A bitcoin “spot” ETF, by contrast, is one backed directly by the cryptocurrency.

“I think his comments are pretty clear that a pure spot bitcoin ETF isn’t coming soon and that futures products would potentially be considered,” Steven McClurg, chief investment officer for Valkyrie, told CoinDesk at the time.

Experts on the topic warned that a bitcoin futures ETF would be subject to disadvantages, most notably the existence of a phenomenon known as “contango bleed” or “roll costs” that would eat into investor returns.

Even so, some analysts predicted that the mere approval of a bitcoin ETF, whether spot or futures-based, would make crypto more accessible to traditional investors and thereby boost overall market sentiment.

On Oct. 15, bitcoin reclaimed the $60,000 price level as investors eagerly awaited a bitcoin ETF approval.

And on Oct. 19, the ProShares Bitcoin Strategy exchange-traded fund (NYSE: BITO), the first bitcoin futures-related ETF to trade in the U.S., went live.

After many volatile price swings this year, bitcoin eventually stabilized just below $50,000 as of late December.

Optimistic price calls made earlier in the year, such as a prediction for $100,000 BTC by the end of year, now look quaint, especially with bullish sentiment deteriorating over the past month.

Some analysts remain hopeful of a short-term price bounce going into the new year, similar to what happened the last time around.

coindesk.com