Here’s why analysts say Bitcoin ETFs may ‘completely change the structure of the market’

Published at: Oct. 28, 2021

After reaching new all-time highs it's customary for Bitcoin (BTC) price see a bit of cooling off in the form of profit taking, consolidation and uncertainty from traders who are cautious about opening new positions at record highs. This appears to be exactly what is occuring this week as Bitcoin price struggles to hold the $60,000 level as support.

Generally, most analysts still retain a bullish macro view of Bitcoin's price trajectory, to the extent that PlanB, Willy Woo and others claim that the second-half of the bull market was certified by the price hitting $67,000 last week.

Here’s what analysts have to say about what may come next for the price of Bitcoin, along with some insights into the greater market dynamics that are currently at play.

Bitcoin ETFs have “completely changed the structure of the market”

A lot of the hype surrounding Bitcoin price over the past couple of weeks has revolved around the launch of a BTC ETF. For years analysts have aid that the instrument's approval would enable a new level of access for institutional investors and officially cement Bitcoin's "mainstream" status.

Now that two futures-based BTC ETFs have launched, there has been a rush by many firms to propose new ETFs, including a leveraged ETF filing from Valkyrie and an inverse Bitcoin ETF from Direxion that would allow speculators to short the price of BTC.

The arrival of these ETF options has “completely changed the structure of the market,” according to Ben Lilly, market analyst and co-founder of Jarvis Labs, "as there is now tertiary derivatives in crypto via spot access, CME futures, futures-based ETFs and options on ProShares Bitcoin Strategy ETF (BITO)."

Lilly said,

“This will create a lot of arbitrage opportunities in the market as already exists with the CME spread. This spread will compress in time as more desks allocate capital to Bitcoin strategies. And in effect, volatility is sure to compress moving forward since any swings will see more capital executed as part of various strategies.”

According to Lilly, the main takeaway from the launch of BTC ETFs, is that “more capital will be flowing into various forms of Bitcoin exposure.” He also noted that “this process takes time” and that “spreads can persist until this new equilibrium is found.”

Analysts expect an intense fight between bulls and bears

One issue that has not received much attention amid the rollout of Bitcoin ETFs is how the method that these products determine the price of BTC will affect the actual spot price of BTC, as well as the spread.

According to David Lifchitz, managing partner and chief investment officer at ExoAlpha, the “premiums and discounts over fair value” that apply to these products will likely lead to larger spreads between the specific Bitcoin ETF and the underlying spot price “as these other contracts also have a premium/discount which tends to be the wider the farther the contract expiration.”

Lifchitz said,

“Add to that the cost of continuously rolling out the futures from one month to another, which will also weigh on the value of the ETF vs. spot over time, and you end up with a total crapshoot that will not track closely the BTC spot price but just correlates to it!”

As far as BTC price action goes, Lifchitz pointed to the firm rejection at the $63,000 resistance level and noted that “the fight here is intense between Bulls and Bears.”

Lifchitz said,

“However, the previous attempts from the bears to take down BTC have been mild, taking it down to just $58,000 before the bulls charged again... so we keep our potential downside targets around $58,000 and $53,000 in the short term, and looking for the $63,000 resistance to become support for the next leg up.”

Some expect a pullback to the low $50,000 range

Similar sentiments were expressed by independent market analyst Ryan Cantering Clark, who posted the following tweet outlining why he is “out of BTC completely for now.”

TBF. This market feels kind of heavy. All the activity in the smaller projects and failure by BTC and ETH at ATH feels like the canary in the coal mine.This market tends to be momo driven and fall under its own weight rather than range higher.Out of BTC completely for now.

— Ryan Cantering Clark (@CanteringClark) October 27, 2021

In a follow-up tweet, Clark highlighted lower level support zones to keep an eye on and where a good entry might present itself.

Clark said,

“If $58,000 does not hold, we likely revisit the low $50,000s. So I will either get involved there, or get involved higher. If leverage can be purged from the system without the above conditions, great. Right now that is my main concern.”

The overall cryptocurrency market cap now stands at $2.452 trillion and Bitcoin’s dominance rate is 44.9%.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.