Was Bitcoin's ETF Approval Priced In?
Also: 10 things ChatGPT has in common with Bitcoin
The recent approval of the Bitcoin ETF sparked a surge in Bitcoin's value, reaching a high of $48K, only to later dip below $42K. This fluctuation raises a question: was the Bitcoin ETF already priced in?
Leading up to the approval, the market sentiment heavily leaned towards a positive outcome for the ETFs. The approval was anticipated to attract a broader investor base to Bitcoin, elevating its price. A look at the betting odds from June 2023 to mid-October 2023 reveals a gradual increase, mirroring Bitcoin's price trajectory during this period. This correlation suggests that the market had been progressively factoring in the ETF approval over the preceding six months (Source: Manifold Markets).
The post-approval price dip can be attributed to two primary factors:
1. Profit-taking: The Grayscale Bitcoin Trust (GBTC) was notably undervalued relative to its Bitcoin holdings. The ETF's launch enabled a more accurate reflection of these holdings' value, prompting investors who had been awaiting this event to cash out, leading to withdrawals exceeding half a billion dollars.
2. The classic 'buy the rumor, sell the news' phenomenon: With the ETF approval transitioning from speculation to reality, market narratives shifted. Developments such as Vanguard's decision not to list Bitcoin ETFs began to dominate investor sentiment, steering the market in new directions.
Looking Ahead:
While the ETF's approval and the anticipation of initial demand were incrementally priced in, the actual inflows for Bitcoin ETF holdings will determine future direction. The market is likely to exhibit significant volatility in the short term as it assimilates various indicators of future demand. Note that the ETF's favorable odds were noted in October at a Bitcoin price of $30K. Should the expected ETF inflows fall short, we could see prices retreating to those levels. Conversely, if demand surpasses expectations, an upward price trajectory is likely.
Since most investors don't understand the value proposition of Bitcoin, they tend to regard Bitcoin as a fad, which biases thinking against future demand. Thus, I would expect greater inflows than what is priced in by the market. This is bullish for the price. Of course, monetary policy remains the largest driver of investor activity and will remain the largest short-term driver of Bitcoin prices.
10 things ChatGPT has in common with Bitcoin
I asked ChatGPT to list 10 things it has in common with Bitcoin. It came up with an impressively insightful list:
1. The disruptive potential of both Bitcoin and LLMs to displace central authorities: Bitcoin challenging central banks and traditional financial systems, LLMs posing a threat to centralized information gatekeepers.
2. Both represent a significant shift towards trust in algorithms over traditional institutions, symbolizing a major cultural shift in how trust is allocated.
3. The role of Bitcoin and LLMs in redefining privacy: Bitcoin through its pseudonymous transactions and LLMs in the way they handle and process vast amounts of personal data.
4. The potential of both Bitcoin and LLMs to create a dependency on technology, where society becomes increasingly reliant on digital solutions for financial transactions and information processing, risking the erosion of traditional, non-digital skill sets and practices.
5. Both Bitcoin and LLMs are frontiers in the evolution of decentralized computing architectures: Bitcoin's blockchain as a decentralized ledger and LLMs' distributed neural networks exemplify a shift from centralized to distributed processing models.
6. The potential of Bitcoin and LLMs to exacerbate social inequalities, leading to debates about technological access and financial inclusion.
7. Their roles in fostering a globalized economy: Bitcoin makes cross-border transactions seamless, and LLMs erase language barriers, yet both lead to cultural homogenization.
8. The philosophical implications each holds for the concept of value: Bitcoin challenges what constitutes 'money', while LLMs prompt us to reconsider the value of human versus machine-generated content.
9. Both Bitcoin and LLMs serve as catalysts for a potential shift in power dynamics, not just politically and economically, but in knowledge and information control.
10. The paradox of decentralization: While both Bitcoin and LLMs embody the principle of decentralized systems - Bitcoin in finance and LLMs in data processing - their widespread adoption could lead to unforeseen centralization of power, either through mining pools in Bitcoin or through the concentration of AI expertise and resources in a few hands, challenging the very ethos they were built upon.