Cryptocurrency financial services company, Matrixport, has projected a possible rejection of spot Bitcoin (BTC) ETF applications in January with final approval in the second quarter of the year.
In a market research report released on January 3, Matrixport provided insights into the reasons why the Securities and Exchange Commission (SEC) is likely to reject a spot BTC ETF this month. The firm also predicted that approval would instead be granted in the next quarter, while indicating that asset prices would remain stable based on other factors.
Delays in Approval Process
The report highlighted that despite repeated meetings between the financial regulator’s staff and ETF applicants, which led to resubmissions, modifications, and widespread anticipation of imminent approval, a key requirement is still pending until the second quarter of 2024.
The political landscape plays a crucial role in determining the approval of a spot ETF. Recent comments by Gary Gensler, the SEC chairman nominee, suggest a need for stricter regulations before a spot ETF can be introduced. Democratic lawmakers have also criticized the market for its lack of regulation, calling for stronger investor protection policies.
“Most commentators describe these criticisms as being anti-crypto,” the report stated.
Gensler’s approach to the cryptocurrency market has drawn criticism for creating unfavorable conditions, unlike those in Europe where court cases have proliferated. Matrixport analysts referenced Gensler’s remarks in December about the presence of bad actors in the crypto market and the need for increased compliance as reasons for the predicted rejection in January.
The Potential Impact of Approval or Rejection
If approved, a spot ETF would signify a regulatory endorsement of BTC as an alternative store of value. However, a denial of the application would result in slight liquidations from various quarters, leading to a decline in the price of Bitcoin.
The firm warned, “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.”
Last year, institutional investors expressed bullish sentiment about the market due to the potential approval of a spot ETF, resulting in billions of dollars flowing into various sectors. Inflows into Bitcoin institutional products reached $1.6 billion, while its assets under management (AUM) surged above $36 billion.
Matrixport, which has been known for its optimistic outlook regarding a spot BTC ETF, previously projected a bullish trend throughout the end of last year and a BTC price of $50,000 by the end of January.
