BTC Breaks Through the $40,000 Mark: An Analysis of the Reasons Behind It

The price of Bitcoin (BTC) recently broke through the $40,000 mark, attracting widespread attention in the market. However, the conversion of a certain trust company's BTC trust fund into a spot ETF may have a negative impact on the price of BTC.

The market has reacted to this news, but we cannot ignore the second part of "buy the rumor, sell the news." The market may experience a sell-off when the news materializes, leading to a significant drop in BTC price.

In the coming years, the BTC price cycle may repeat itself. It is worth noting that the launch of ETFs may have a positive impact on cryptocurrency prices in the long run.

However, the current market does not have the conditions to start a new bull market. We should not rule out the possibility of experiencing a small bear market phase before that.

Speculators maximize their profit potential by betting on these events. A certain BTC trust fund has received widespread attention since the beginning of this year, with billions of dollars flowing into the over-the-counter market. Therefore, once ETF trading begins, new and old investors may be eager to close their positions for profit, which could lead to a significant drop in BTC prices.

Analysts Support Bearish View

The deadline for some ETF applications is in early January 2024, which means we may hear more related news in December of this year.

A certain large investment bank analyst believes that during the process of converting trust funds into ETFs, there may be "at least $2.7 billion of capital outflow."

The expected outflow of funds from trust fund investors may lead to a decline in BTC prices and return to cyclical lows (which also corresponds with BTC's historical price cycles).

Therefore, the launch of the ETF may not immediately drive up the price of BTC, but rather become a "sell the news" event, similar to what we observed during the launch of futures products.

A certain exchange paved the way for Bitcoin futures trading on Wall Street, with many believing this to be the ultimate "sell signal" event. The exchange launched Bitcoin futures in December 2017, coinciding with the peak of the bull market and the beginning of a two-year bear market.

Another exchange launched Bitcoin futures in September 2019, allowing for cash settlement. However, this was yet another "sell-the-news" event. Bitcoin then entered a small bear market that lasted for several months until the events of March 2020 and the macroeconomic and social conditions (such as the Federal Reserve's unlimited quantitative easing) provided support for the cryptocurrency market.

Currently, several funds are applying for a Bitcoin spot ETF. Despite facing political pressure, regulators may ultimately have to accept it.

Trust Fund Heavily Discounted

Due to the significant gap between the trust fund and the spot price of Bitcoin (with a discount rate as low as 48%), coupled with the increasing likelihood of regulators accepting the conversion of the trust fund into an ETF, traders heavily bought into the trust fund in 2023.

Currently, the discount rate of the trust fund is 10% (below the spot price of BTC on the exchange), and the discount rate has significantly narrowed after approximately $2.5 billion in funds flowed in.

It is foreseeable that once the ETF starts trading, a large portion of these funds may flow out.

Most speculators see it as an annual trading opportunity and bet a large amount of money on the potential for the trust fund to transform into a Bitcoin ETF.

However, the main event of 2024 will be the BTC halving (and the speculative activities surrounding it). This halving may also be the last one of significant importance and could become a turning point for excessive returns on BTC prices.

With the launch of multiple spot ETFs, institutional capital inflows could become a decisive factor in driving the BTC price to break through $100,000 in 2024.

Conclusion

Although the financial industry shows a strong interest in cryptocurrencies, the adoption of cryptocurrencies in real life will be determined by the free market rather than regulatory bodies.

The market will determine the application scenarios and advantages of cryptocurrencies, and end users will decide their practicality and value.

When evaluating the scalability limitations of BTC, the financial sector will also consider whether it can serve as a reliable store of value or gain substantial applications through the Lightning Network.

In addition to BTC, the financial industry also recognizes the characteristics and importance of other cryptocurrencies such as Bitcoin Cash, Ethereum, and Litecoin.

Looking ahead, the cryptocurrency market is expected to continue its strong development momentum next year.