COIN ETF, Event Horizon

After the PBOC curtailed Bitcoin trading inside China, America reasserted itself as the most important price setting location. The SEC’s decision on a rule change that could allow the listing of the world’s first Bitcoin ETF is the most anticipated binary outcome of 2017. Traders will make and lose tremendous sums over the next few weeks.

ETF Approval

If the SEC approves the Bats rule change, all manner of American muppet retail investors can yolo into Bitcoin via a regulated ETF. The pool of eligible money that can easily obtain exposure to Bitcoin will dramatically rise. There are various predictions about the amount of money that could flow into Bitcoin. In short, it will be Yuge.

I expect the price to appreciate by at least 100% by the end of March. This is pure speculation as no actual cash will flow into Bitcoin until the ETF begins trading later this year. The price may go up well over 100% only to sharply correct as animal spirits are tamed.

Those wishing to play the initial pump should buy the BitMEX Bitcoin / USD 31 March 2017 futures contract, XBTH17. The nitty gritty of when and how the ETF will be launched may dampen enthusiasm in the medium term. A future that expires during the height of the fomo leaves the best chance for longs to be forced into closing at a profit.

Those bullish over the medium-term, should purchase the BitMEX Bitcoin / USD 30 June 2017 futures contract, XBTM17. XBTM17 will list Friday 17 March 2017. The basis or implied interest longs pay for three month exposure will open high and rise aggressively.

During the height of the December 2013 bubble, the ICBIT March 2014 futures contract traded at an outright 100% basis. By selling futures and buying spot, you would double your money in USD terms. ICBIT only featured 3x leverage at the time, imagine how high basis could go with 100x. XBTM17 basis could trade into 100’s of percentage points throughout the contract’s life.

The Deny

The number of reasons why the SEC should not list the ETF is as numerous as those in favor of an approval. A significant amount of traders have not drank the Jim Jones koolaid. The BitMEX COIN Prediction Futures Contract, COIN_BH17, places the probability at 50%.

China took a backseat in this first quarter rally due to the actions by the PBOC. Since Bitcoin withdrawals were shut in February, hope of an ETF approval became the bullish narrative.

After Bitcoin withdrawals ceased in China, the price fell below $1,000 and quickly recovered to the kilo mark (who isn’t in love with the CoCo). That is the baseline support level sans an ETF approval.

If the rule change is denied, the price will quickly test $1,000. Due to the underlying bullishness of the market, traders will BTFD. If not now, the general consensus is that one of the many ETF applications will be approved. The market will focus on the next application approval deadline for the SolidX or Greyscale ETF.

One Week Expected Value (EV)

Assuming a 50% probability of approval, traders must compute the EV of the looming decision.

(50% * 100% Price Appreciation) + (50% * -30% Price Depreciation) = +35% EV

The EV is positive, meaning it behooves traders to be net long Bitcoin into the decision.

BitMEX offers a complete Bitcoin / Fiat trading suite. The most liquid option is to buy the Bicoin / USD Swap, XBTUSD. Be early. The enthusiasm and hype surrounding the decision will only grow throughout the week. Every major financial paper is covering this event. I have never seen so much interest in a mundane exchange rule change before.