Bitcoin ETF is Becoming a “Sell the News” Event

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  • Bitcoin’s dramatic price increase has increased the odds that a Bitcoin ETF approval will be a “sell the news” event
  • This is where an asset is sold off after a much-anticipated event
  • If Bitcoin’s price is north of $40,000 if/when a Bitcoin ETF is approved, the odds of a selloff are higher

When Blackrock, Fidelity, and others filed for a swathe of Bitcoin ETFs in June, Bitcoin’s price was just short of $25,000. Now, with approval potentially just a month or so away, discussions have begun over whether the approval itself will result in a price spike or a price drop. With the potential of an ETF inflating the price up to the recent highs of $42,000, is there more chance of a selloff on the announcement, assuming it comes in January? This is known as a “sell the news” event, and Bitcoin’s recent surge suggests it will happen.

What is a “Sell the News” Event?

A “sell the news” event refers to a market phenomenon where traders or investors sell their positions in an asset immediately after a highly anticipated news event or announcement takes place. This behavior is rooted in the idea that the build-up to the event causes a surge in buying activity as traders aim to capitalize on the expected positive outcome. However, once the news is officially announced and becomes public knowledge, some market participants decide to sell their positions to lock in profits or avoid potential risks associated with the unknown.

In essence, the phrase encapsulates the tendency of market participants to react by selling after the news is released, regardless of whether the news is positive or negative. This can lead to a reversal in the asset’s price trend, as the buying pressure that drove the run-up to the event diminishes, and profit-taking or risk-aversion takes over. Traders often strategize around the “sell the news” phenomenon, anticipating it in their decision-making processes.

Bitcoin Showing Characteristics

We have certainly seen the surge in Bitcoin buying in the lead-up to the anticipated positive news, to the point where, at the $42,000 that Bitcoin recently hit, the news of an ETF could be “priced in.” This means that the perceived value of Bitcoin with an ETF attached has already been met in the run-up, leaving it with no room to go. An asset that has reached its perceived value when the anticipated news is announced has much more chance of going down than an asset that is undervalued at the time of a huge announcement.

Of course, no one knows what Bitcoin’s perceived value with a BlackRock ETF attached would be, but the fact that Bitcoin has risen 60% on the potential alone suggests that it might well be priced in, given that Bitcoin has just exited a bear market. The closer Bitcoin’s price is to the $40-$50,000 mark if/when the ETF is announced the more likelihood there is that a “sell the news” event will take place.