Quick Take
Bitcoin’s price plummeted 10% today, dropping from $45,426 to $40,870, following Matrixport’s pessimistic report on the SEC’s likely rejection of Bitcoin Spot ETFs. The report dampened the recent market optimism fueled by expectations of an ETF approval, suggesting potential sharp declines and recommending traders to hedge against the anticipated negative outcome. Despite this, Matrixport forecasts a long-term bullish trend for Bitcoin.
Bitcoin’s Rollercoaster: The ETF Dilemma and Matrixport’s Pessimistic Forecast
Yesterday’s optimism in the Bitcoin market, where prices surged past $45,000 – a peak not seen since April 2022 – has today been replaced with abrupt despondency. The cryptocurrency, often praised for its volatility and potential, experienced a significant 10% plunge within a mere two hours, descending from $45,426 to $40,870. This sudden downturn can be traced back to a report by Matrixport, casting a shadow of doubt over the anticipated approval of a U.S. Bitcoin Exchange-Traded Fund (ETF).
Matrixport’s report titled “Why the SEC will REJECT Bitcoin Spot ETFs again”, which has quickly become a topic of intense discussion among investors and analysts alike, outlines a rather bearish outlook on the approval of Bitcoin Spot ETFs by the U.S. SEC. This perspective is particularly noteworthy given Matrixport’s previous bullish stance on Bitcoin, predicting an ascent to $45,000 by Christmas 2023 and potentially $50,000 by the end of January 2024, contingent on SEC’s approval of the ETFs.
However, the report highlights several critical issues. Firstly, it points out the shortfall of the current ETF applications in meeting a key SEC requirement, a gap that might only be bridged by Q2 2024. Consequently, Matrixport anticipates a rejection of all Bitcoin Spot ETF proposals in January. This projection aligns with SEC Chair Gary Gensler’s cautious approach towards cryptocurrency regulation. Gensler’s stance, coupled with a Democrat-dominated SEC commission, suggests a reluctance to legitimize Bitcoin as an alternative store of value through the approval of a Spot ETF.
The ETF saga has significantly influenced market dynamics. Since September 2023, traders, buoyed by the hope of an ETF approval, have injected at least $14 billion into the cryptocurrency market. This investment, driven partly by the Federal Reserve’s dovish turn, includes a substantial portion contingent on the ETF’s green light. Matrixport’s analysis warns of potential cascading liquidations and a sharp price decline, possibly to the $36,000-$38,000 range, should the SEC deny the ETF applications. This scenario could be triggered by unwinding $5.1 billion in perpetual long Bitcoin futures.
Matrixport’s advisory to traders is cautionary: if no approval news surfaces by January 5, 2024, it recommends hedging long exposure by purchasing the $40,000 strike puts for the end of January or even shorting Bitcoin through options.
Despite this grim short-term forecast, Matrixport maintains a long-term bullish outlook for Bitcoin. It predicts that the cryptocurrency’s value by the end of 2024 will surpass its year-starting price of $42,000. This optimism is rooted in historical trends, where U.S. election years and Bitcoin mining years have generally been favorable for the digital currency.
Shivam Thakral, CEO of BuyUcoin, remarked, “The report from Matrixport had an immediate impact, resulting in a decline in the prices of a majority of cryptocurrencies, including Bitcoin and Ethereum.”
“The market is expected to maintain its volatility in the upcoming weeks until there is greater clarity regarding the approval of ETFs,” Shivam added.
The market recovered from today’s low of $40,870 to $42,200 at the time of publication.
Overall, the Bitcoin market stands at a critical juncture, oscillating between hope and uncertainty. The impending SEC decision on Bitcoin Spot ETFs will not only influence immediate market behavior but also set a precedent for the regulatory and political future of cryptocurrencies in the U.S. For investors and market watchers, the next few weeks promise to be a period of intense scrutiny and possible volatility.