As the prospect of the United States greenlighting the first-ever spot exchange-traded fund (ETF) for Bitcoin looms, analysts warn of potential turmoil ahead for retail investors holding the cryptocurrency. Joshua Lim, Genesis Trading’s head of derivatives, foresees a volatile start to Bitcoin’s price action in 2024, highlighting concerns in a recent thread on X (formerly Twitter).

Traditional Finance’s Interest and Impact on Bitcoin

Lim underscores that Bitcoin has become a target for traditional finance players, often referred to as “TradFi,” who anticipate substantial gains following the potential approval of the spot ETF. Further, he notes that these entities have steadily built their positions over recent months, bearing significant costs to maintain these holdings.

CME Group Bitcoin futures open interest. Source: Joshua Lim/X

Additionally, this assertion aligns with data reflecting open interest on CME Group‚Äôs Bitcoin futures, demonstrating a considerable increase in asset managers’ exposure by approximately $1 billion since the end of September.

Risks and Market Sentiment Surrounding ETF Approval

The analysis points out that the performance of the first Bitcoin futures ETF (BITO) and stocks of crypto-related companies like Coinbase (COIN) up by 250% year-to-date, indicate heightened enthusiasm and institutional adoption of Bitcoin.

Coinbase (COIN) vs. ProShares Bitcoin Strategy ETF (BITO) chart. Source: TradingView

However, analysts caution that the excitement leading up to the spot ETF approval might result in a market scenario akin to a “buy the rumor, sell the news” event.

Retail investors, drawn into the crypto market by the ETF hype, could face challenges post-approval. The warning suggests that once the spot ETF receives regulatory clearance, the enthusiasm that has boosted Bitcoin’s value could reverse abruptly. This situation could potentially leave retail investors holding Bitcoin with a “hot potato” as the market sentiment shifts.

Potential Bitcoin Volatility Ahead

The impending approval of a Bitcoin spot ETF, eagerly anticipated by institutional players, and generating substantial market buzz, presents a two-fold scenario.

While it signals further institutional adoption, analysts caution that the immediate aftermath of approval might trigger volatility and a sell-off, potentially impacting retail investors who joined the market on high expectations fueled by the ETF news.

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Tanishi is an established writer in the realm of cryptocurrency and blockchain, renowned for her expertise and insightful analysis. With a deep-rooted passion for the dynamic world of digital finance, Tanishi delivers compelling news and articles that captivate a wide-ranging audience.