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Bitcoin Tumbles: Is it Bad News for ETFs?

Last Updated January 3, 2024 2:09 PM
Teuta Franjkovic
Last Updated January 3, 2024 2:09 PM

Key Takeaways

  • Matrixport has changed its outlook on the SEC’s decision on spot Bitcoin ETFs.
  • The firm now believes that the SEC is unlikely to approve the ETF applications in the near future.
  • This decision could have a significant impact on the cryptocurrency market.
  • A rejection could lead to a 20% drop in Bitcoin’s price.
  • Matrixport is advising investors to protect their positions by purchasing put options or considering short positions.

The United States Securities and Exchange Commission (SEC) may potentially decline all proposals for a spot Bitcoin exchange-traded fund (ETF) due to a lack of a key requisite. This is according to a note a note  from digital asset management firm Matrixport on January 3.

This update follows Matrixport’s previous day’s prediction  that Bitcoin could surge to $50,000 before the weekend.

SEC’s ETF Rejection Due to Gensler’s Crypto Compliance Concerns

The firm now suggests  that the SEC might greenlight these ETF applications by the second quarter of this year.

Matrixport attributes the potential rejection of the spot Bitcoin ETF applications by the SEC to the persistently cautious stance of SEC Chair Gary Gensler towards cryptocurrencies. Gensler has frequently highlighted the crypto industry’s non-compliance with regulatory standards.

The firm believes  Gensler’s ongoing focus on the need for regulatory compliance in the crypto sector is a strong indicator of a likely disapproval. Such a decision could significantly affect the potential for widespread investment in the cryptocurrency space.

The report said:

“An ETF would certainly enable crypto overall to take off, and based on Gensler’s comments in December 2023, he still sees this industry in need of more stringent compliance.”

SEC’s Approval of Spot Bitcoin ETF Unlikely?

Matrixport has underscored that the majority of the voting commissioners who would approve such funds are affiliated with the Democratic party, which is generally perceived as having reservations about cryptocurrencies. This view is exemplified by figures like Democratic Senator Elizabeth Warren. Her critical approach to the crypto sector has been a source of contention among industry participants.

Furthermore, the firm points out  that regulatory authorities do not seem to have compelling political reasons to approve a spot ETF. Such an approval would effectively endorse Bitcoin as a viable alternative asset. This lack of political will casts doubt on the prospects of a rapid endorsement from these bodies.

This cautious outlook from Matrixport contrasts with the more optimistic views prevailing in the market. Several analysts anticipate the regulator’s approval of the pending ETF applications by the week’s end.

Bitcoin Could Plunge 20%

Matrixport has warned  that Bitcoin’s value might plummet by approximately 20%, potentially dropping to around $36,000, should the SEC decide against the ETF applications.

The firm elaborated  that any rejection from the SEC might trigger a series of liquidations, especially considering the $5.1 billion currently tied up in perpetual long Bitcoin futures. Such an event could swiftly reduce Bitcoin’s value, driving it back down to the $36,000 to $38,000 range.

In light of this potential scenario, Matrixport is advising  investors to protect their long positions by purchasing put options with a $40,000 strike price for the end of January, or even considering short positions against Bitcoin’s price as a hedge.

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