Is a historic week ahead for digital assets?

Thought of the week

An adoption of Bitcoin Spot ETFs in the US could cause temporary volatility, create a short-term media echo and then lead to initial corrections before strengthening the market in the long term! This means that the short-term effects are usually overestimated, while the long-term effects are often underestimated.

Digital Asset News

The high price of a whole Bitcoin has so far held back some potential investors due to the psychological effect known as “unit bias”, but this could change with the introduction of Bitcoin index funds (ETFs), as Gabor Gubachs, financial expert from asset management company VanEck, points out.

To explain: the “unit bias” in the investment industry describes the effect that investors aim to acquire an entire unit of a financial product for psychological reasons. If the price for this is too high, they prefer not to buy smaller units at all.

In a corresponding post on X (formerly Twitter), Gurbacs explains that many investors are still unaware that they can also own smaller shares of Bitcoin and that most investors are focussing on the important threshold of 1 BTC:

“I was quite surprised when I realised that many people are completely unaware that they can also own a share of a BTC. However, people often don’t even want to own just one share.”

From a psychological point of view, it would therefore be much more attractive for most investors to own a whole unit of the cryptocurrency than just a part of it.

“Owning a whole unit simply feels better than owning 0.001 Bitcoin. It’s not really a big deal, but it has a big impact,” says the expert.

The US Securities and Exchange Commission (SEC) has begun accepting the necessary applications from equity exchanges to allow the approval of a first direct Bitcoin index fund (ETF).

On 5 January, the corresponding 19b-4 amendment applications for spot BTC ETFs were submitted and accepted by asset managers BlackRock, Valkyrie, Grayscale, Bitwise, Hashdex, ARK 21Shares, Invesco Galaxy, Fidelity, Franklin Templeton, VanEck and WisdomTree.

The amendments are one of the final stages in the SEC’s approval process, but first the S-1 filings must also be finalised so that US stock exchanges can begin listing ETF shares.

Some experts have speculated that final approval for the spot Bitcoin ETFs will come before 10 January – the review deadline for ARK Invest and 21Shares’ applications. A potential approval could mean greater adoption of cryptocurrencies in the US and globally.

Meanwhile, Eric Balchunas, ETF analyst at Bloomberg, expressed optimism in a post on X (formerly Twitter) that the SEC would approve a Bitcoin ETF by early next week:

“Yes, we’re actually already through. Last I heard (from multiple sources), final S-1s are due Monday at 8am as the SEC tries to get everyone lined up for the January 11 launch.”

Coinbase is looking to expand its derivatives offering in the European Union by acquiring a company in Cyprus licensed under the Markets in Financial Instruments Directive 2014 (MiFID II).

MiFID II refers to the EU’s updated rules for financial instruments. The EU updated the legislation in 2017 to address criticism that it focussed too much on equities and did not take sufficient account of other asset classes, such as fixed income, derivatives and currencies.

According to the company’s own blog post, Coinbase can now offer regulated derivatives such as futures and options in the EU with a MiFID II licence. The company already offers spot trading in Bitcoin and other cryptocurrencies.

Coinbase further explained that the acquisition of the Cyprus-based company ensures compliance with its “five-points-for-global-compliance standard”.

Derivatives are an important focus for Coinbase as they account for 75% of total crypto trading volume. While Coinbase endeavours to compete, it faces strong competition from better-known players in the derivatives markets such as Binance, Bybit, OKX and Deribit. Derivatives are financial instruments that derive their value from the performance of an underlying asset, index or price.

Digital Asset Market

From a chart perspective, Bitcoin is once again trading a few percentage points below the high it formed for the year. The “pre-run” for the ETFs has already happened, so consolidation until confirmation does not seem unlikely. Increased volatility to take leveraged positions out of the market could also occur. A certain degree of caution should always be exercised here!

The next price targets in the event of a positive development: ~$45,000, ~$46,550, ~$49,000

The next price targets in the event of a negative trend: ~$42,500, ~$41,000 ~$39,500

Painless market participants can still position themselves before the ETF approvals on Wednesday; some altcoins in particular offer good entry opportunities after a major correction. As there is the unlikely possibility that the SEC will thwart the ETF applications and reject them, risk management should always be chosen consciously and optimised in order to avoid suffering significant capital losses due to the potentially increased volatility, as the long-term outlook is positive!

Weekly overview

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