A Matrixport analyst said that SEC Chair Gary Gensler has no political reason to legitimize Bitcoin as an alternative store of value.
Bitcoin, the largest cryptocurrency by market cap, had a strong start to 2024, pushing past $45,000 on January 2. The surge was driven by optimism that the US Securities and Exchange Commission (SEC) will batch approve the first spot Bitcoin ETFs this week.
While some prominent analysts have predicted a 90% chance of approval by January 10, a growing number of analysts are now expressing doubt.
Markus Thielen, Head of Research at Matrixport, wrote in a January 2 research note that all applications still fall short of a “critical requirement” that must be met before obtaining approval.
“This might be fulfilled by Q2 2024,” he wrote, “but we expect the SEC to reject all proposals in January.”
Thielen pointed toward the Democrat-dominated SEC, namely toward Chairman Gary Gensler, who has regularly called for more stringent regulation of the cryptocurrency industry.
“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… 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 wrote.
Eric Balchunas, a senior Bloomberg analyst who still maintains a 90% chance of approval by January 10, said that a last-minute rejection would be the “rug pull of the decade”.
“Everybody put in a lot of work in this, especially over the holidays. Sadistic might not even be strong enough a word for it,” he recently said.
This sentiment was echoed last week by Nate Geraci, President of ETFStore and host of the ETF Prime podcast, who said that a rejection could be one of the “bigger rug pulls in crypto history”.
Rejection could see a -20% price correction
The price of Bitcoin surged by nearly 80% in the months after BlackRock, the world’s largest asset manager, filed for a spot Bitcoin ETF on June 15. In the past 24 hours however, Bitcoin is down by 7%, likely due to dampened sentiment.
Investors can expect the price to drop even further in the coming weeks, according to Matrixport.
Since September, $14 billion of extra fiat and leverage has been deployed into the wider crypto market. While some of these flows may be linked to improved macroeconomic conditions, $10 billion is estimated to be linked to optimism of the SEC clearing the first Bitcoin ETFs.
“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,” Thielen wrote.
“We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range.”
Historically, the SEC has rejected all spot crypto ETF applications, including applications from Ark Invest, Winklevoss and VanEck. Many however believe that BlackRock’s entrance to the market will break the cycle of rejections, particularly since the recent amendments to BlackRock’s application, such as cash redemptions, which align more closely with traditional ETF structures.
In 2023, Matrixport accurately predicted that Bitcoin will reach $45,000 by the end of the year.
Thielen maintained that Matrixport still expects Bitcoin to end 2024 on a higher note than it started, even if there is a denial. This is based on the fact that 2024 is both an election year and halving year, which tend to be bullish.
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