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The Bitcoin swings punctured - if only briefly - a period of low volatility that reflects a lack of buyer interest. Image Credit: REUTERS

New York: A brief 10 per cent surge in Bitcoin on Monday gave traders a glimpse into the possible impact of a looming US Securities & Exchange Commission decision on whether to allow exchange-traded funds investing directly in the token.

An erroneous report that BlackRock had won approval to launch a spot ETF rapidly sent the largest digital asset to $30,002 on Monday, the highest price since March. The move cooled after the world’s biggest money manager said its application remains under review, still leaving Bitcoin 4.4 per cent higher for the session.

BlackRock is among about a dozen firms seeking to offer the first US spot Bitcoin ETFs amid expectations that the SEC may soon end its opposition to the products. Optimists argue such funds will help spur wider crypto adoption.

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“This was like a dry run for what’s going to happen if these things actually do get approved,” Bloomberg Intelligence ETF analyst James Seyffart said. “It basically gave traders a playbook.”

Speaking on Bloomberg Television, Seyffart said he expects a batch of spot Bitcoin ETFs to be approved by a January deadline.

The Bitcoin swings punctured - if only briefly - a period of low volatility that reflects a lack of buyer interest. Many investors have deserted virtual coins following last year’s rout and blowups like that of the FTX exchange, whose co-founder Sam Bankman-Fried is on trial for a multibillion-dollar fraud.

Short squeeze

Data from tracker Coinglass shows that $107 million worth of Bitcoin positions, mostly from traders who were betting on lower prices, were liquidated over the past 24 hours.

“Now that we are seeing some progress on the ETF front, I think we will see moves to start to price this in,” wrote Noelle Acheson, author of the Crypto Is Macro Now newsletter. She also anticipates some people will turn to the token to hedge against geopolitical and economic uncertainties.

Developments over spot ETFs have triggered some of Bitcoin’s largest 2023 rallies. In June, the digital asset topped $30,000 after heavyweights including BlackRock and Fidelity Investments sought permission from the SEC to start the funds. The token then retreated to about $26,000.

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Another spurt came late August when a US court ruling potentially paved the way for the $17.7 billion Grayscale Bitcoin Trust to convert into an ETF.

SEC’s role

The SEC has cracked down on the crypto sector this year and so far resisted spot Bitcoin ETFs, citing risks such as fraud and manipulation in the token’s spot market. It has permitted ETFs holding Bitcoin and Ether futures.

The regulator warned people to be “careful what you read on the internet” in a post on X, the platform formerly known as Twitter, after Monday’s Bitcoin gyrations. The agency added that “the best source of information about the SEC is the SEC.”

The likelihood and timing of spot ETF approvals remain a matter of debate. ETFs investing in futures on Ether - the second-largest token - debuted in the US in October but failed to gain traction, a blow for arguments that crypto adoption is bound to expand.

Spot Bitcoin ETF approvals could see Bitcoin jump to about $32,000, but “the question is how far away is that from coming and then what happens at range highs - at the very least, I wouldn’t expect it to break range highs, on the first test,” said Tony Sycamore, a market analyst at IG Australia Pty.

Bitcoin was little changed at $28,322 as of 10:23 am in Singapore on Tuesday, with smaller tokens like Ether and Dogecoin also posting small moves. Bitcoin has risen 71 per cent so far this year but remains far below its 2021 peak of about $69,000.