Matrixport: Why did the SEC reject Bitcoin spot ETF again?

Matrix on Target is optimistic about the consensus outlook for 2023 and predicted at the beginning of the year that Bitcoin could reach $45,000 by Christmas. We even expect that if all SEC requirements for a Bitcoin spot ETF are met, Bitcoin could rise to $50,000 by the end of January 2024. Although we have seen frequent meetings between ETF applicants and SEC staff, resulting in applicants resubmitting their applications, we believe that all applications have failed to meet the key requirements that the SEC must meet before approval. This may be achieved in the second quarter of 2024, but we expect the SEC to reject all proposals in January.

The current SEC five-member voting commissioner leadership, which is dominated by Democrats, is unlikely to approve an ETF that legitimizes Bitcoin as an alternative store of value . This is because an ETF would certainly make the cryptocurrency market as a whole take off, and according to Gensler’s comments in December 2023, he believes that the industry needs stricter compliance. From a political perspective, there is no reason to approve a Bitcoin spot ETF, as this would make Bitcoin a legitimate choice as an alternative store of value.

At least $14 billion in additional fiat and leverage has flowed into crypto since traders began betting on ETF approval in September 2023. Some of these inflows may be related to the easing of macro conditions as the Fed turned dovish. However, of this $14 billion in additional longs, $10 billion may be related to the anticipation of ETF approval. If the SEC says no, we may see cascading liquidations as we expect at least $5.1 billion in additional perpetual long Bitcoin futures to be liquidated. Bitcoin prices could quickly fall 20% back to the $36,000/$38,000 range.

If market participants do not hear any approval news before Friday, January 5, 2024. In this case, Matrix on Target recommends traders to hedge their long positions by buying $40,000 strike put options for late January, or even short Bitcoin directly through options. Even if the SEC rejects the ETF, we still expect Bitcoin prices to be higher at the end of 2024 than at the beginning of this year ($42,000) , as US election years and Bitcoin mining years tend to be positive.