The Crypto Market Just Schooled You on “Buy the Rumor, Sell the News”

After many months of waiting and a hack/“false alarm” from the SEC, 11 spot Bitcoin ETFs are now approved and the next wave of the crypto gold rush is in progress. Unfortunately, with the financial markets being as efficient and forward-looking as they’ve ever been, it’s increasingly difficult to capitalize on this.

At noon on Friday, Bitcoin was down 1.5% for the week and, according to Barron’s, “on pace for its worst weekly performance since the end of 2023.” This occurred even though spot Bitcoin ETFs will enable investors to indirectly pour capital into accounts that restrict direct purchases of Bitcoin.

JPMorgan Chase strategists actually warned that this could happen. They spoke of a potential “buy the rumor, sell the fact” event after the SEC finally approved one or more spot Bitcoin ETFs, which everybody and his uncle already knew would happen anyway.

They didn’t know the exact timing of this event, but the common wisdom was that it would happen by January 10. Lo and behold, after a false announcement on January 9, the SEC waited until the last minute but did approve the Bitcoin funds on January 10.

Bitcoin and Bitcoin-related stocks jumped at first, but as the old market saying goes, the first move is always the wrong one. That’s because the beginners are the market’s first responders, whereas the professionals tend to “fade” or bet against whatever positions the beginners have taken.

Courtesy: Crypto Rover, TradingView

On the other hand, the beginners who bought at the top might be rewarded in the end. If Bitcoin repeats gold’s long-term, post-ETF-approval rally, a five-fold or greater move could be in store.

The problem is that the beginners don’t tend to hold on when the going gets tough. They capitulate at the first sign of a drawdown, and then the professionals swoop in to buy at low prices.

In the short term, the real winners will be the funds that collect fees for managing their Bitcoin ETFs. In case financial giants like BlackRock and Fidelity didn’t already make enough money off of amateur traders, now they’ll get to skim off the top as the latecomers wager their paychecks on these newfound ETFs.

And now, you’ll start hearing sky-high Bitcoin-price predictions in the media again. Cathie Wood, for example, is now saying that the Bitcoin ETF approval will send Bitcoin to $1.5 million by 2030.

You don’t hear these moon-shot predictions much when Bitcoin is falling. Yet, that’s the best time to buy an asset, if you’re going to buy and hold it for the long term.

Courtesy: @Micro2Macr0

Rest assured, you’ll start hearing ultra-bullish Bitcoin forecasts again in April, when the next Bitcoin halving/halvening event is scheduled to occur. But again, this is already a known event and will surely be priced in ahead of time.

Jumping into the trade too eagerly is a mistake, but then, so is refusing to acknowledge the blockchain revolution. Stubbornly, Vanguard is refusing to allow its users to buy the new spot Bitcoin ETFs, and many customers are protesting by switching to other brokers.

Vanguard also has no plans to offer a spot Bitcoin ETF. Whether that’s a smart move or not will only be known in hindsight, months or years from now. For now, it highlights the divide between the Bitcoin bulls and the traditionalists.

In any case, it’s been possible to buy Bitcoin without lining the pockets of big brokerages for many years now. It appears that indirect Bitcoin ownership will come in many flavors in 2024, but the original recipe of just buying Bitcoin is still my favorite.