(Bloomberg) — An erroneous news report that sparked a brief 10% rally in Bitcoin is shining a spotlight on a crypto industry that’s waiting with bated breath for the arrival of mass-market ETFs to revitalize its fortunes.
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On Monday morning, a rally in the token was quickly reversed after a news report incorrectly asserted that BlackRock Inc. had received the green light to launch a spot exchange-traded fund in the cryptocurrency.
While the news may have been bogus, the money at stake was very real. Data from tracker Coinglass shows that more than $85 million worth of trading positions, mostly from traders who were betting on lower prices, were liquidated over the past 24 hours.
While misinformation is par for the course for an industry beloved by fraudsters and digital advocates alike, the episode adds to the raging debate on whether the market has actually priced in the arrival of an exchange-traded fund tracking the largest digital coin. It also underscores concerns held by regulators that retail investors lack basic protections in the crypto Wild West — a sticking point that has in the past fueled the Securities and Exchange Commission’s reluctance to broaden market access.
“The fake news about the Bitcoin ETF being approved highlights the challenge of protecting investors in an unregulated space that attracts shady operators and rampant speculation,” said Michael O’Rourke, chief market strategist at JonesTrading.
Bitcoin jumped above $30,000 to its highest level since July after a handful of tweets propagating the unfounded news pushed the price up. The coin then pared those gains to trade around $28,300 — just about where it had been before the incident — after BlackRock said its ETF application was “still under review” by regulators.
This particular instance comes at a time of heightened expectations that a spot-Bitcoin ETF will indeed soon be available to American investors. Issuers have been trying to get a US spot-Bitcoin ETF launched for about a decade now, with no luck. Regulators have cited market manipulation and scams as some of the reasons for past denials.
But that hasn’t deterred companies from trying to tap into what potentially and ultimately could amount to billions of dollars of inflows. Many issuers have over the years worked on their applications — or on ways to appease regulators — with the hopes of getting such a fund off the ground. There are currently more than 10 outstanding applications for a spot Bitcoin ETF, and because BlackRock and other heavyweights including Invesco and Fidelity are part of the current race, many analysts believe the chances of approval are stronger.
Monday’s frenzy also showcases that any potential approval hasn’t yet been priced into the market, given the swift 10% rise for Bitcoin. The crypto market is ripe for false starts given that what’s at stake is the opening up of crypto to a greater base of investors, says Todd Sohn, ETF and technical strategist at Strategas Securities.
“Bitcoin is still flat since March, so I’d guess it’s not fully priced in,” said Sohn. “If a fake headline was worth 6-10%, the real deal should equate to more.”
Roxanna Islam, associate director of research at VettaFi, agrees.
“We’ll see a stronger, more sustained rally once spot-Bitcoin ETFs are actually approved,” she said. “This morning’s move was based on very uncertain news that was disproven soon after its release, so the market did not have adequate time to react.”
–With assistance from Muyao Shen.
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