SEC to reject Bitcoin ETF applications, Matrixport claims

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In its recent note titled “Why the SEC Will REJECT Bitcoin Spot ETFs Again,” crypto investment services provider Matrixport anticipates that the U.S. Securities and Exchange Commission (SEC) will deny all applications for spot Bitcoin exchange-traded funds (ETFs).

“SEC Chair Gensler is not embracing crypto in the U.S., and it might even be a very long shot to expect that he would vote to approve bitcoin spot ETFs,” Matrixport said.

Matrixport’s report highlights Gensler’s December 2023 remarks, indicating his view that the crypto industry needs tighter compliance and suggesting that an ETF would greatly enhance its growth.

“From a political perspective, there is no reason to approve a bitcoin spot ETF that would legitimize Bitcoin as an alternative store of value,” said Matrixport.

The approval expectation for a Bitcoin ETF in the U.S. boosted Bitcoin prices to levels last seen in April 2022, closing 2023 with almost a 160 percent increase for the year.

Matrixport suggests that around $10 billion of the additional $14 billion invested in crypto since September might be linked to the anticipation of an ETF.

“Some of these flows might be associated with easier macro conditions as the Fed has turned dovish. However, of those $14 billion of additional longs, $10 billion might be related to the ETF approval expectation,” said Matrixport.

SEC rejection will trigger widespread liquidations

According to Matrixport, if the SEC denies approval, it could lead to extensive liquidations.

“If there is any denial by the SEC, we could see cascading liquidations as we expect most of the $5.1 billion in additional perpetual long Bitcoin futures to be unwound. We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range,” Matrixport said.

Matrixport recommended that if no approvals are announced by January 5, traders should hedge their long exposure. It suggested buying $40,000 strike puts for January’s end or directly shorting Bitcoin using options.

By the end of this year, Matrixport predicts that Bitcoin prices will reach $42,000.

“Even if the SEC would deny the ETF, we still expect Bitcoin prices to be higher by the end of 2024 than when they started the year ($42,000), as US election years and Bitcoin mining years tend to be positive,” the firm said.

Crypto market drops after Matrixport releases report

On Wednesday, the cryptocurrency market lost over $100 billion in value, dropping by more than six percent. This happened coincidentally when Matrixport released its report.

Crypto analyst Will Clemente blamed Matrixport for causing the drop, showing how the crypto market reacts strongly to rumors and news.

“Over $1 billion of Bitcoin futures OI wiped out in one candle. Thanks Matrixport,” Clemente said in a social media post.

Crypto newsletter Wealth Mastery founder Lark Davis shared a similar view as Clemente, saying, “Bitcoin dumped over a rumor started by Matrixport. Gives you a taste of what would happen if the SEC actually did deny the ETF. BUT, chances are still overwhelmingly in favor of an approval.”

Regarding the market decline following its report, Matrixport co-founder Jihan Wu clarified, saying, “As intended, this recent report was prepared for Matrixport’s clients. However, its wide spread by the media was not planned by Matrixport and is beyond our control.”

In a social media post, he suggested that Bitcoin’s significant price drop was due to volatility caused by expectations around the spot Bitcoin ETFs.

Wu maintains that Matrixport consistently advises clients to watch out for risks and leverage, especially because of the market’s volatility tied to ETF expectations.

He stressed that this volatility is apparent in the high funding fees within the perpetual market and the recent decline in crypto-related stocks over the past two trading days leading up to today.

“In my opinion, the approval of a Spot ETF by SEC, which will attract fresh investment into Bitcoin, is inevitable,” said Wu.