NYDIG: Fake news awakens market "animal spirits," some industry analyses on ETFs lack common sense and are filled with absurdity

Original Title: Fake news and faulty analysis in the times of open data

Original Author: Greg Cipolaro, NYDIG Global Head of Research

Original Compilation: WEEX Exchange

This article mainly discusses:

• On Monday, fake news regarding the approval of a Bitcoin ETF pushed the price of Bitcoin to $30,000.
• However, after a pullback, the price continued to rise, leading us to believe that some dormant "animal spirits" have been awakened.
• Public analysis of important projects has led to some erroneous and absurd conclusions, and the crypto industry needs to improve in this area.

On Monday morning Eastern Time, erroneous news reports about the SEC approving BlackRock's iShares spot ETF caused Bitcoin's price to surge. Within minutes, Bitcoin skyrocketed by 7%, reaching $30,000, resulting in $85 million in short futures liquidations.

Unfortunately, this excitement was short-lived, as a tweet from the crypto news site Cointelegraph was proven to be completely fabricated, originating from an anonymous Telegram user and unverified.

Despite the news being proven false, the price movement seemed to awaken Bitcoin's "animal spirits," perhaps reminding investors of the importance and proximity of spot ETF applications. This incident raises two important topics: news and data analysis in the open era, and the role of market sentiment.

WEEX Note: "Animal spirits" is a concept introduced by economist John Keynes in his seminal work "The General Theory of Employment, Interest, and Money," used to describe the emotions, confidence, and willingness to invest in the economy, which can significantly impact economic activity. Specifically, "animal spirits" refer to the economic behaviors people undertake due to fluctuations in emotions and confidence in uncertain economic environments. It indicates that market participants' emotions and confidence can lead to behaviors driven not only by rational economic factors but also by emotions, expectations, and social psychological factors.

Open, but Clear?

It is well-known that Bitcoin is built around the philosophy of "openness." It is a peer-to-peer technology that anyone can download, use, and propose modifications to. The Bitcoin blockchain, which serves as a running ledger for transactions between participants, is open for anyone to check and observe. However, Bitcoin's UTXO model makes information ambiguous, making it difficult for external observers to understand what is intended to be sent and retained in transactions, as well as the anonymity of Bitcoin, where real-world entities are represented by their addresses (or multiple addresses). All of this means that while Bitcoin's data is available to everyone, its interpretation often relies on subjectivity, making it prone to errors.

In contrast, the SEC's EDGAR database is a free financial document repository operated by a government regulatory agency. The SEC requires publicly traded companies to submit certain financial documents (e.g., 10-Qs, 10-Ks, 8-Ks) in a prescribed manner (e.g., quarterly reports, annual reports) and to report in a standardized format (e.g., GAAP statements), which are verified by various first and third parties (e.g., auditors, lawyers, management teams). This is a system built on trust in the application of relevant parties and financial standards. In a sense, it is open, as anyone can access financial documents by visiting the EDGAR website, but unlike Bitcoin, external observers cannot verify the underlying data, such as Apple's quarterly sales figures.

Even Open, Certainty is Often Elusive

One of the misunderstandings about Bitcoin and blockchain data is that because it is open and available to everyone, the truth is easy to ascertain. But just ask a few simple questions, and it quickly becomes complicated.

• How much Bitcoin does Satoshi Nakamoto own? Estimates vary widely.
• How much Bitcoin is circulating in the network? Total output should be easy to measure, but the transaction volume of economic entities varies by data provider.
• What is the amount of Bitcoin available for use/purchase in circulation (free float)? Coin Metrics just published a comprehensive report on this (https://coinmetrics.io/special-insights/exploring-supply-transparency).

Therefore, we believe that although this information is public and accessible to everyone, it is easily misread, and the analysis results themselves carry a degree of uncertainty.

Don't Trust, Verify

"Don't trust. Verify." This is a frequently repeated Bitcoin mantra that speaks to the user's ability to verify the network, code, and transactions themselves, implying Bitcoin's core purpose as a payment technology that does not require trust in financial intermediaries.

Clearly, in the case of Cointelegraph's false news about the SEC approving the ETF, the aforementioned situation (decentralization, disintermediation, editor's note) did not occur. Verifying the source of information should be a core principle of any journalism, but this clearly did not happen here.

We also conducted a rough search of SEC, SRO (Self-Regulatory Organization, a self-regulatory organization for the U.S. over-the-counter market regulated by the SEC; editor's note), regulatory, and legal documents but did not confirm this claim. The SEC even later tweeted, "Be careful what you read on the internet. The best source of information about the SEC is the SEC."

News Did Not Pass the Smell Test

If you have been following the ETF race over the past few months, you would immediately be skeptical of this tweet, as the phrasing or wording of "SEC APPROVES ISHARES BITCOIN SPOT ETF" does not align with your expectations.

While the underlying asset of the ETF is Bitcoin, not Bitcoin futures or other financial products, "Spot" is a strange market jargon. Moreover, the fund's name is "iShares Bitcoin Trust," which should be correctly cited.

Additionally, this is a Nasdaq 19b-4 filing, a proposed rule change to the SEC aimed at listing and trading shares of the iShares Bitcoin Trust. Therefore, while the substantive content may be the approval of the underlying ETF, technically, this is a rule change application to the Nasdaq exchange.

The final warning regarding this incident is that people expect the SEC to appear impartial and fair in the public eye, thus approving (or rejecting) many or most ETF applications simultaneously. Approving only the iShares product would contradict this point.

If readers want to access the source of information, we recommend using the following links:

• Grayscale vs SEC case docket: https://www.courtlistener.com/docket/66681951/grayscale-investments-llc-v-sec
• SEC National Securities Exchange filings: https://www.sec.gov/rules/sro/national-securities-exchanges
• Federal Register: https://www.federalregister.gov
• EDGAR company filings: https://www.sec.gov/edgar/searchedgar/companysearch

The News is Fake, but the Price is Real

The interesting aspect of this week's price movement is not that Bitcoin's price rose due to the "approval" of the ETF, despite it being false, but rather that people expected this to happen. It was expected that the price would pull back (after learning the news was false, editor's note), but after the initial adjustment, it continued to rise. As of Friday, October 20, Bitcoin's trading price was nearly as high as during the initial surge caused by the fake news.

Our explanation is that this news and Bitcoin's subsequent price movement awakened the "animal spirits" of the crypto industry, reminding traders that ETF approval is imminent and the potential impact it may have.

Considerations for ETF Scale

How significant is the impact of a spot ETF on the crypto industry? This question has sparked much debate and led to some absurd analyses. Frankly, some are so ridiculous that they wouldn't pass the first round of interviews for investment banking analyst campus recruitment. Nevertheless, investors should take note of these analyses.

Compared to gold ETFs, the percentage of Bitcoin held through funds has already surpassed that of gold (Bitcoin at 4.9%, gold at 1.6%), but in dollar terms, the amount of Bitcoin held through funds is still low (Bitcoin at $28.9B, gold at $211B).

We must also consider the Venn diagram of U.S. investors, where some wish to hold Bitcoin but cannot or do not want to hold a spot Bitcoin ETF, as there are now various options, including holding spot, private funds, and futures ETFs in the public market.

The timing of fund inflows is also crucial. The calculation of $10 billion over the next ten years versus $10 billion in the first year will have different impacts on spot prices. The GLD ETF (SPDR Gold Shares, one of the largest gold ETFs, launched by State Street Global Advisors in 2004; editor's note) is historically the most successful ETF, achieving $5.3B in AUM in its first year, while its first month's size was less than $2B.

Another factor to consider is where we are in the Bitcoin price cycle. Launching a spot Bitcoin ETF at the peak of the cycle, like the BITO ETF, versus launching during the cycle reconstruction phase—where we are today—will lead to different market demands.

The final factor, which is almost impossible to gauge, is the money multiplier effect. Given Bitcoin's low trading volume and order quantity, will inflows at this time have a greater impact on spot prices than during times of higher liquidity? We would bet yes, but the number is anyone's guess (we're using 10x). However, regardless of your view on any specific factor, there should be an appropriate framework rather than throwing darts randomly, unless your goal is to state the largest number, in which case, congratulations.

Call to Action for the Industry

Social media and public discussions can greatly benefit investors as they integrate unique perspectives from people around the world. The advantage of crowdsourced news and analysis is that it covers more ground (thousands of cryptocurrencies, global news, numerous technologies, etc.) in ways far beyond the capabilities of any individual or company. Unfortunately, conclusions are often biased, prejudiced, or completely incorrect (of course, we are not absolutely correct either). These topics are complex and nuanced, often covering areas of technology, law, regulation, and macroeconomics that have never been addressed before.

Regrettably, voices on social media do not receive the treatment of uncertainty or nuance. Strong voices, strong claims, and anger often attract attention rather than rational discussion. In the case of Cointelegraph's fake news, its editor pointed out that the pressure to become "break news" and to publish ahead in a noisy media environment is one of the reasons for the error.

You can say "I don't know" or "I have no idea," and that's OK; these are powerful statements. People do not need to have an opinion on every topic in this industry. If a topic is within your control, you better study it thoroughly, especially if you plan to disseminate it to the industry.

One of the frustrating aspects of the competition for spot ETFs, and one of the reasons we have to write so much related content, is the misunderstanding of the review process by public figures, some of which are basic common sense. We hope the industry can provide better, well-thought-out analyses to benefit the future investor community. The crypto industry is at a critical milestone that has been brewing for over a decade, and the world is watching.