Matrixport: Why the SEC Will Reject a Bitcoin Spot ETF Again

Matrix on Target is optimistic about general market expectations in 2023 and began the year predicting that Bitcoin could reach $45,000 by Christmas. We even expected that Bitcoin could rise to $50,000 by the end of January 2024 if all SEC requirements for the Bitcoin Spot ETF were met. While we have seen frequent meetings between ETF applicants and SEC staff that have resulted in applicants resubmitting their applications, we believe that none of the applications have met the key requirements that the SEC must fulfill prior to approval. This could happen in the second quarter of 2024, but we expect the SEC to reject all proposals in January.ASIC miner

It is unlikely that the current leadership of the five-member SEC voting commission, dominated by Democrats, will approve an ETF that legalizes bitcoin as an alternative reserve value.This is because ETFs are sure to take off the cryptocurrency market as a whole, and based on Gensler’s comments in December 2023, he believes that the industry needs stricter compliance. From a political standpoint, there is no reason to approve a Bitcoin spot ETF as this would make Bitcoin a legitimate alternative to storing value. Bitcoin mining

At least $14 billion in additional fiat currency and leverage has flowed into the cryptocurrency since traders began betting on the ETF’s approval in September 2023. Some of these inflows may be related to the Fed’s shift toward dovish easing of macro conditions. However, $10 billion of that $14 billion in additional longs could be related to expectations of ETF approval. If the SEC vetoes it, we could see a cascade liquidation as we expect at least $5.1 billion of additional perpetual long Bitcoin futures to be liquidated. Bitcoin price could quickly fall 20% back to the $36,000/$38,000 range.

If market participants do not hear of any approval by Friday, January 5, 2024 In this case, Matrix on Target suggests traders hedge their long positions by purchasing $40,000 strike puts at the end of January, or even outright short Bitcoin via options. Even if the SEC rejects the ETF, we still expect Bitcoin prices to be higher at the end of 2024 than they were at the beginning of this year ($42,000), as U.S. election years and Bitcoin mining years tend to be positive.