Crypto investors awoke to falling prices on Tuesday as the predicted correction for Bitcoin (BTC)
and the broader cryptocurrency market came ahead of the Securities and Exchange Commission’s (SEC) upcoming ruling on multiple spot BTC ETF filings, catching traders off guard.
Many are attributing the sudden price dump to FUD (fear, uncertainty, and doubt) sparked by a report from Markus Theilen, head of research at Matrixport, which suggests that the SEC will reject the spot BTC ETF applications again.
“While we have seen frequent meetings between the ETF applicants and staff from the SEC, which resulted in the applicants refiling their applications, we believe all applications fall short of a critical requirement that must be met before the SEC approves,” Thielen said. “This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.”
He noted that the “five-person voting Commissioners leadership critical for the ETF approval of the SEC is dominated by Democrats,” and highlighted that “SEC Chair Gensler is not embracing crypto in the US, and it might even be a very long shot to expect that he would vote to approve Bitcoin Spot ETFs.”
“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,” Thielen said. “From a political perspective, there is no reason to approve a Bitcoin Spot ETF that would legitimize Bitcoin as an alternative store of value.”
He suggested that $10 billion of the $14 billion in extra fiat and leverage that has been deployed into crypto since September “might be related to the ETF approval expectation,” and warned that an ETF rejection could result in rapid price depreciation.
“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,” he said. “We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range.”
Thielen recommended that if an approval was not announced by Friday, traders should “hedge their long exposure by buying the $40,000 strike puts for the end of January or even going outright short Bitcoin through options.”
“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,” Thielen concluded.
In response to the report and the subsequent downturn in the market, Bloomberg Intelligence senior ETF analyst Eric Balchunas said they still give the odds of approval at 90%.