Bitcoin Crashed During the Launch of Its Spot ETFs! ❌

🐺 Hi pack-mates,

This is Howling Markets, the friendliest guide dog helping you through the treacherous financial markets!

Today we will be covering:

• Education: What Is a “Buy the Rumors, Sell the News” Trading Strategy? 📈 

• Citigroup Posts $1.8 Billion in Losses 📉

• Bitcoin Crashed During the Lauch of Its Spot ETFs! ❌

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Is a “Buy the Rumors, Sell the News” Trading Strategy?

When it comes to trading and investing everyone has their preferred method. Some investors prefer to base their strategy on fundamentals, while most short term traders mainly look at technical indicators.

However, an important part of opening a position is having a general understanding of the major news that are about to be released. This is because even if you plan to keep a trade open just a couple of days, its returns might be substantially changed by the release of some shocking information.

On the other hand, buying a security when some great news are released might often be too late. Because of this, the “buy the rumors, sell the news” trading strategy was born.

The reason behind the madness is that the market is forward looking, so as soon as there are some rumors, it starts pricing in the possibility of future great news. Then, as the release date or occurrence begins to inch closer, the price will continue to slowly climb.

As a result, once the actual news is released and the occurrence has realized, the market has already priced in the entire change, and it is very unlikely to “jump” or keep climbing.

What is far more likely is that all the investors and traders that got when they heard the rumor will get out, selling the news, as they expect that the price will not go any higher.

Citigroup Bank Posts $1.8 Billion in Losses

In a recent newsletter, published at the end of December, we have talked about how 2023 has been the worst year since 2008 based on job cuts in the banking sector. Last year 61,905 jobs were cut in the 20 largest banks in the world.

Despite this surge in layoffs, analyst predicted that the number hadn’t yet peaked and that it was likely to keep climbing in 2024.

This week Citigroup has reported its quarterly earnings for the period ending in December, and they were shocking. The bank reported a net loss of -1.84 billion dollars for the last three months of the year, concluding the worst quarter in 14 years.

However, such a result did not scare the shareholders because it was entirely motivated by a one-off charge of $4 billion tied to a company restructuring and other expenses. The CEO stated that even if the results are not great, he expects 2024 to be a significant turning point.

As part of the restructuring Citigroup expects to cut at least 20,000 jobs in 2024, 10% of its workforce. However, they also expect job cuts to continue through 2025 and 2026 until they reach a target of 180,000 employees, from a high of 240,000 at the beginning of 2023.

How do you think the banking sector will perform in 2023?

Today’s Howling Question

And now, it is time for our howling question!

We have been discussing Bitcoin quite a lot recently, especially in relation to the volatility caused by the launch of the new spot ETFs.

Do you know how much Bitcoin managed to gain/lose between the beginning of 2024 and Friday the 12^th of January?

a)  -5%

b)  -2%%

c) +1.0%

d)  +3%

e)  +6%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Bitcoin Crashed During The Launch of its Spot ETFs

So, what happened during the launch of the Bitcoin’s spot ETFs?

It happened the classic “exhibit A” of the buy the rumors, sell the news principle. Since the end of October Bitcoin’s price has rallied more than +80% as it continued to price in more and more positive rumors about the future launch of the spot ETFs and then on the day of the launch the price dropped by almost 8.0%!

Additionally, it was also a pretty bad day for options traders. We have recently discussed how the price of these financial derivatives depends on many different aspects including the price of the underlying, time to expiration, volatility and much more.

Volatility is especially important as a higher volatility increases the probability of the price going up before a given expiration, increasing the price of the derivative.

Because of this, when this big news are expected, options traders often bet on the increase of the volatility to generate additional profits together with the movement of the underlying.

However, even options markets are forward thinking and often the volatility peaks even before the news are released. So, on the day of the launch of the ETFs between the drop in volatility and the one in Bitcoin’s price, options traders betting long have been hit pretty hard.

On the other hand, thinking about rumors, the potential Ethereum ETF comes to mind right away. Do you believe that it is a good buying opportunity?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

On Friday stocks continued to inch higher with the SPX closing +0.08%. However, it was a very indecisive day as the price opened higher, rallied above the previous day’s high and above the all-time high before coming down again.

Additionally, it is still important to keep an eye on the RSI divergence which continues to remain the strongest indicator pointing towards a potential reversal.

Bonds, on the other hand, managed to break down the previous support level and use it as a resistance to keep pushing down. During Friday’s trading session the 10 year US government bond yield fell by -0.68%.

Answer

The correct answer is c) +1.0%.

Despite the surge in volatility and great news that helped Bitcoin surge by around 9% during the first weeks of January, the -7.73% drop on the ETFs’ released day has brought the YTD to merely 1.23%.

Howl-Worthy Memes 😂

🐺 See you next time!

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