Will they, or will they not? US regulators are putting crypto investors on edge as they decide whether to approve bitcoin exchange-traded funds (ETFs).

Derivatives traders are already jumping in, wagering that the Securities and Exchange Commission will approve numerous ETFs this week, electrifying the market.

Open interest, or the amount invested in bitcoin futures, has steadily climbed since October, reaching $19.2 billion in early December, the largest level in two years, according to information portal Coinglass. It is currently between $17 billion and $18 billion, up from the $9.5-$14.5 billion range predicted for the whole of 2023.

“We eagerly await the SEC’s decision,” said analysts at analytics firm Amberdata. “This event has been factored into the options market’s pricing since October, creating a heightened sense of anticipation.”

It’s been a long path for U.S.-listed spot ETFs linked to volatile bitcoin, which would provide access to the cryptocurrency through ordinary stock exchanges in a marriage with mainstream finance that may attract large investors.

Since 2013, multiple asset managers have requested for clearance to establish spot bitcoin ETFs, but the SEC has denied them, citing the products’ vulnerability to market manipulation.

However, by the end of 2023, after a year of intense deliberations and lobbying, the SEC was in talks with firms interested in issuing ETFs, fueling optimism that the long-awaited funds would join the market and spark waves of bitcoin investment.

Bitcoin funding rates have risen across most exchanges this year, showing that traders are ready to pay more to keep long positions, and funding rates have remained generally positive since October, according to Coinglass.

Those gains occurred as spot bitcoin surpassed the $45,000 mark on January 2, following a 170% increase in 2023.

Both retail and institutional investors are excited, with premiums for bitcoin futures on the Chicago Mercantile Exchange (CME) surging.

“CME’s front-month BTC premium has averaged 42% since the yearly open, a new all-time high, telling of the massive long bias presently in the market,” analysts at K33 Research said.

However, be wary of bitcoin’s volatility.

With so much bullishness baked in, unfavourable news on a spot ETF might trigger a wave of selling, according to several market experts.

Following its initial surge, bitcoin’s spot price fell below $43,000, but has subsequently recovered. As it fell, it caused “a wave of liquidations, with bitcoin open interest dropping by more than $1 billion in just a few hours as leverage was flushed out of the market,” said Dessislava Aubert, senior analyst at Kaiko Research.

According to Jag Kooner, head of derivatives at Bitfinex, even the approval of a spot ETF may cause a price drop as investors book profits, highlighting the market’s susceptibility to news and regulatory events.

According to data from The Block, at-the-money implied volatility in the bitcoin options market, which is the market’s estimate of a potential price change, is at its highest level in a year.

Options contracts grant buyers the right, but not the duty, to buy or sell an underlying asset at a preset price in the future.

Coinglass’ crypto fear & greed index, a measure of market emotion, is at a two-month high and has been in “greed” area for the previous 30 days, meaning that “fear of missing out” feeling is high.

(Adapted from FastBull.com)