Matrixport, a crypto-financial service platform, has been notably optimistic about the approval of a spot Bitcoin ETF this month.
However, the firm’s recent report suggests a shift in sentiment, speculating that the US Securities and Exchange Commission (SEC) may reject any proposals in January.
January Blues for Crypto?
The growing anticipation within the crypto community for the approval of a Bitcoin ETF has had a tremendous effect on the industry, which has recovered from the downturn of 2022. An approval is also expected to potentially open new avenues for mainstream investors to participate in the digital asset market.
As such, several experts, as well as Matrixport, have been fairly bullish on this front.
However, in its latest report, Matrixport highlighted that the current leadership overseeing the approval of ETFs at the SEC consists of a five-person voting Commissioners team, primarily composed of Democrats.
SEC Chair Gary Gensler’s evident hostility towards the crypto sector makes it highly unlikely that he would support the endorsement of spot Bitcoin ETFs. Gensler’s remarks in December 2023 also emphasize the belief that the industry requires increased compliance with strict regulatory standards.
Considering the political landscape, there is little incentive to approve a spot Bitcoin ETF, as it would validate the cryptocurrency as an alternative store of value.
What If the SEC Denies Spot Bitcoin Approval Again?
It is important to note that traders began betting on the approval of an ETF in September 2023, which translates to a substantial influx of at least $14 billion in fiat and leverage has been directed into the market.
Some of these capital inflows may be linked to more favorable macroeconomic conditions resulting from the Federal Reserve adopting a dovish stance, according to the report. However, out of the $14 billion in additional long positions, an estimated $10 billion could be attributed to the anticipation of ETF approval.
In the event of a denial by the SEC, the report anticipates potential cascading liquidations, especially with expectations that a significant portion of the additional $5.1 billion in perpetual long Bitcoin futures might be unwound. This scenario could lead to a rapid 20% decline in Bitcoin prices, reverting to the $36,000/$38,000 range.
Should there be no news of approvals by Friday, January 5, 2024, experts advise the traders to hedge their long exposure by acquiring $40,000 strike puts for the end of January or consider taking outright short positions on Bitcoin through options.