Bitcoin ETF may get rejected and trigger 20% price drop, Matrixport predicts
Matrixport predicts liquidations could trigger a 20% Bitcoin price drop if the SEC denies ETF applications.
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Matrix, a US crypto investment company, believes that all current ETF spot Bitcoin applications pending in the Securities and Exchange Commission (SEC) do not meet the requirements set by the commission for obtaining ETF approval, according to their latest report.
Given the current Democrat-dominated leadership, they predict that the SEC will likely reject the applications in January. Matrix expects that the approval for these applications may happen instead in Q2 of 2024.
Exchange-traded funds (ETFs) are investment funds traded on stock exchanges, similar to stocks. Crypto ETFs track the prices of one or more cryptocurrencies. Investing in a crypto ETF can appeal to retail and institutional investors looking to gain exposure to the crypto market while avoiding some of the risks of owning crypto assets directly. For example, a crypto ETF investor would not need to personally manage crypto wallet security or custody.
SEC Chair Gary Gensler seemingly opposes fully embracing crypto, making ETF approval a long shot. An approved ETF would legitimize Bitcoin as an alternative store of value, something Gensler still resists based on compliance concerns voiced publicly several times last year.
Since September 2022, at least $14 billion of extra fiat and leverage have entered crypto, partly based on ETF approval bets. While some inflows relate to more accessible Fed policy, Matrix ties $10 billion directly to ETF speculation.
If the SEC denies proposals, cascading liquidations could spark a 20% Bitcoin price plunge toward the $36,000-38,000 range as leveraged longs rapidly unwind. Matrix estimates $5.1 billion of perpetual Bitcoin futures longs remain vulnerable.
With no approvals by January 5th, Matrix recommends traders hedge long exposure using $40,000 strike puts or outright Bitcoin shorts to brace for potential rejection fallout.
Despite near-term bearishness on ETF approval odds, Matrix expects Bitcoin to end 2024 higher year-over-year.