Bitcoin BTC/USD, the world's largest cryptocurrency, experienced a dramatic nosedive, plunging over 9% following a report from Matrixport. Released on Wednesday, the report from the financial services firm dampened hopes for the approval of Bitcoin Spot Exchange-Traded Funds (ETFs) in the United States by the Securities and Exchange Commission.
This drop in Bitcoin's value also triggered liquidations worth $500 million across various derivatives exchanges, marking a tumultuous moment in the cryptocurrency market.
Bitcoin fell from over $45,000 to just under $41,000 on Wednesday morning, before bouncing back over $42,000 at the time of publication.
Contrary to general market optimism, Matrixport predicts that the SEC will reject all applications for Bitcoin Spot ETFs in January 2024.
The firm's analysis suggests that despite meeting several SEC requirements, all Bitcoin Spot ETF applications will likely fall short of a critical requirement, leading to their rejection.
"... 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 report stated.
The report points to the political composition of the SEC's five-person voting Commissioners, dominated by Democrats, and SEC Chair Gary Gensler's cautious approach to crypto.
Gensler's recent comments indicate a need for more stringent compliance in the crypto industry, reducing the likelihood of a Bitcoin Spot ETF approval.
Since September 2023, traders have been optimistic about an ETF approval, leading to an influx of approximately $14 billion into crypto.
However, Matrixport warns that a rejection could trigger significant market volatility, potentially causing Bitcoin prices to drop by 20% to the $36,000 to $38,000 range.
Also Read: China Targets Cryptocurrency In Fight Against Corruption: Focus On Cold Storage, Virtual Currencies
The firm recommends that traders hedge their long exposure by buying $40,000 strike puts for the end of January, or consider shorting Bitcoin through options.
Despite the potential short-term challenges, Matrixport remains optimistic about Bitcoin's price by the end of 2024. The firm cites historical trends in U.S. election years and Bitcoin mining years as factors contributing to a positive long-term outlook.
Matrixport's report provides a cautious perspective on the future of Bitcoin Spot ETFs, diverging from the general market optimism.
The firm's analysis suggests that the SEC's decision could lead to significant market volatility and advises investors to prepare for potential price declines.
However, their long-term outlook for Bitcoin remains positive, expecting prices to rise by the end of 2024.
UPDATE: Jihan Wu, co-founder of Matrixport sought to downplay the report, saying Matrixport's analysts operate independently, expressing their opinions without any influence or interference from management.
He added that looking at Bitcoin's history and its future prospects, the current volatility and the potential approval uncertainty of a Bitcoin ETF in January 2024 are ultimately of no importance.
"In the long term, Bitcoin will always prevail. In my opinion, the approval of a Spot ETF by SEC, which will attract fresh investment into Bitcoin, is inevitable. Bitcoin is poised to solidify its position as a store of value and a risk-hedging asset akin to be better than gold," he said.
Read Next: Bitcoin NFTs Reach $881M In December: Digital Gold Rush Or Passing Fad?
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