Spot Bitcoin ETF Approval: ‘Buy the Rumor, Sell the News?’

Is a spot bitcoin ETF approval already baked into the price of bitcoin, or will investors get to have their cake and eat it too and enjoy more gains if or when the SEC gives such a fund the greenlight.  

Although a nod from the Securities and Exchange Commission is not guaranteed, it’s highly expected and could come any day now. 

There’s plenty of evidence suggesting that the price of bitcoin (ticker symbol: BTC) will jump on approval news. 

For example, on June 15, BlackRock, the behemoth ETF issuer of iShares with over $9 trillion in assets under management, announced it would apply for a spot bitcoin ETF, adding its name to a list of several other issuers.  

During the following week, as investor excitement grew over an eventual spot bitcoin approval, BTC jumped 15%. 

On Oct. 16, BTC surged nearly 10% after a false report of a spot bitcoin approval was posted on the social app X, formerly Twitter.  

On Oct. 23, BlackRock’s proposed spot bitcoin ETF was given a ticker (IBTC), and BTC jumped another 10% following the news. 

Through the first week of November BTC has gained more than 110% this year.  

With so many buyers having already jumped into BTC, investors would be wise to question how much further the highly watched cryptocurrency can rise, or if it could even fall following possible news of an approval.  

Spot Bitcoin ETF: Buy the Rumor, Sell the News? 

There’s no way to know for certain now how the price of bitcoin will move immediately following an expected spot price bitcoin ETF approval, but the popular investing adage, "buy the rumor, sell the news," comes to mind. The adage reflects the idea that market participants often act on expectations and speculation. When the anticipated news is finally confirmed, it may not have the same impact on bitcoin’s price as the earlier rumors and expectations did. 

Here’s how “buy the rumor, sell the news” works: 

• Buy the rumor: This part of the saying suggests that before a significant event or news announcement takes place, there is often speculation, rumors or anticipation in the market about the potential outcome of that event. During this period of speculation, traders and investors may buy or accumulate positions based on their expectations or beliefs about what the news will reveal. In other words, they are buying assets in anticipation of a positive or favorable outcome. 
• Sell the news: Once the actual news is officially announced, there can be a shift in market sentiment and behavior. Even if the news is in line with or exceeds expectations, some market participants may decide to sell their positions. That is because, in many cases, the price has already been bid up in anticipation of the news, and once the news becomes public, there may be little room left for further price appreciation. Consequently, the market may experience a selloff, causing prices to drop. 

Study Suggests Spot Bitcoin ETFs Could Underperform

While there’s not an exact precedent for SEC approval of an ETF tracking such a speculative asset as bitcoin, a recent study found that niche ETFs generally tend to underperform the broad stock market for five years after launching. The study doesn’t specifically cite bitcoin ETFs, but it does suggest weaker-than-expected performance following a spot bitcoin ETF launch. 

The reason that newly launched niche ETFs tend in general to underperform is that they often come to market when investor enthusiasm for the underlying benchmark asset or respective investment theme has reached a peak level. That in turn means that the securities in which these ETFs invest have tended to be overvalued. Whether that plays out in a spot bitcoin ETF approval scenario remains to be seen, but investors should remain aware of this history. 

Bottom Line on Buying a Spot Bitcoin ETF Upon SEC Approval

Bitcoin is a speculative asset; therefore, price movements can be volatile and difficult to predict. Thus, investors should be prepared for a move in either direction, up or down, in the price of bitcoin when the news of SEC approval of a spot bitcoin ETF is announced, assuming such an announcement comes. BTC price movement could be up very briefly in the short term then down after investors look beyond the initial excitement.  

Therefore, traders and investors would be wise to prepare in advance for any outcome on spot bitcoin ETF performance following a highly anticipated SEC approval, as this performance can be volatile, turning quickly in either direction, or it could even move the opposite of what is expected.