A recent incident that sparked a short-lived 10% Bitcoin rally due to fake news has raised concerns in the cryptocurrency industry.
This sector is eagerly anticipating mass-market Exchange-Traded Funds (ETFs) that could potentially revitalise its fortunes.
On a Monday morning, Bitcoin’s value quickly surged, only to be swiftly reversed. This sudden fluctuation was triggered by an erroneous news report that claimed BlackRock Inc. had received approval to launch a cryptocurrency spot ETF.
While the news itself was fake, the real financial consequences were significant. Data from tracker Coinglass revealed that over the past 24 hours, more than $85 million worth of trading positions, primarily held by traders betting on lower prices, were liquidated.
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Misinformation in cryptocurrency sector
Misinformation is not uncommon in the cryptocurrency industry, a sector notorious for attracting fraudsters and digital enthusiasts. This episode, however, adds to the ongoing debate surrounding whether the market has accurately factored in the potential arrival of an ETF tracking the largest digital coin, Bitcoin. It also accentuates regulators’ concerns that retail investors may lack basic protections in the cryptocurrency market, a factor that has previously made the Securities and Exchange Commission (SEC) hesitant to broaden market access.
Michael O’Rourke, Chief Market Strategist at JonesTrading, highlighted the challenge of safeguarding investors in a largely unregulated space, one that attracts dubious operators and rampant speculation. The recent fake news incident about the Bitcoin ETF’s approval underscored these challenges.
According to O’Rourke, “The fake news about the Bitcoin ETF being approved highlights the challenge of protecting investors in an unregulated environment that attracts shady operators and rampant speculation.”When the fake news propagated, Bitcoin’s price surged above $30,000, reaching its highest level since July. The cryptocurrency then reversed these gains and settled around $28,300 after BlackRock announced that its ETF application was “still under review” by regulators.
This incident occurred during a period of heightened expectations that a spot-Bitcoin ETF will soon become available to American investors. Issuers have been working on getting a US spot-Bitcoin ETF launched for approximately a decade, but have faced numerous obstacles. Regulators have cited market manipulation and scams as reasons for past denials.
However, despite these challenges, companies are continuing their efforts to tap into what could potentially amount to billions of dollars in investments. Many issuers have spent years working on their applications and strategies to appease regulators. With industry giants like BlackRock, Invesco, and Fidelity involved in the race, many analysts believe that the chances of approval have increased.
The frenzy on that particular Monday also underscores that the potential approval of a Bitcoin ETF has not yet been fully priced into the market. Given Bitcoin’s rapid 10% rise, it is clear that the cryptocurrency market is primed for false starts. The stakes are high, as such an approval would open up the cryptocurrency market to a broader base of investors.
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Bitcoin’s value in 2023
Todd Sohn, ETF and Technical Strategist at Strategas Securities, noted that Bitcoin’s value has remained relatively stagnant since March, indicating that a genuine ETF approval is not yet fully priced in. He suggested that if a fake headline could drive a 6-10% increase, an actual ETF approval could lead to even more significant gains.
Roxanna Islam, Associate Director of Research at VettaFi, concurred, stating that the market would likely see a stronger and more sustained rally once spot-Bitcoin ETFs receive actual approval. She noted that the recent rally was based on uncertain news that was disproven shortly after its release, leaving the market without adequate time to react.