Why the SEC will REJECT Bitcoin Spot ETFs again
- by Markus Thielen

Why the SEC will REJECT Bitcoin Spot ETFs again. Executive Summary: Matrix on Target has been bullish against consensus expectations in 2023 and predicted early in the year that Bitcoin could reach $45,000 by Christmas. We even expected that if all the SEC requirements for Bitcoin Spot ETFs were fulfilled, Bitcoin could rally toward $50,000 by the end of January 2024. While we have seen frequent meetings between the ETF applicants and staff from the SEC, which resulted in the applicants refiling their applications, we believe all applications fall short of a critical requirement that must be met before the SEC approves. This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.

The current five-person voting Commissioners' leadership critical for the ETF approval of the SEC is dominated by Democrats. 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. An ETF would certainly enable crypto overall to take off, and based on Gensler’s comments in December 2023, he still sees this industry in need of more stringent compliance. From a political perspective, there is no reason to approve a Bitcoin Spot ETF that would legitimize Bitcoin as an alternative store of value.

Since traders started betting on an ETF approval in September 2023, at least $14 billion of extra fiat and leverage has been deployed into crypto. Some of these flows might be associated with easier macro conditions as the Fed has turned dovish. However, of those $14 billion of additional longs, $10 billion might be related to the ETF approval expectation.

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. We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range.

Suppose market participants have not heard of any approvals by Friday, January 5, 2024. In that case, Matrix on Target recommends that traders hedge their long exposure by buying the $40,000 strike puts for the end of January or even going outright short Bitcoin through options.

Even if the SEC would deny the ETF, we still expect Bitcoin prices to be higher by the end of 2024 than when they started the year ($42,000), as US election years and Bitcoin mining years tend to be positive.

Written by Markus Thielen, Head of Research & Strategy at Matrixport. Author of Crypto Titans.

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Industry views and information shared do not represent Matrixport's position and do not constitute any investment advice.