The Securities and Exchange Commission (SEC) is widely predicted to reject several proposals for Bitcoin spot exchange-traded funds (ETFs) this month, which could lead to steep declines in Bitcoin prices according to predictions from cryptocurrency analysis firm Matrix on Target.
Matrix on Target has been more bullish compared to consensus expectations for Bitcoin in 2023, forecasting in early January that prices could reach $45,000 by Christmas. The firm even thought prices could approach $50,000 by the end of January 2024 if the SEC approved Bitcoin spot ETFs after applicants fulfilled all requirements.
However, Matrix now believes the applications still fall short of a critical necessity for SEC approval, which may not be met until Q2 2024. Given the Democratic dominance of the 5-member SEC Commissioner leadership, approval seems unlikely. SEC Chair Gary Gensler has not embraced crypto regulation in the US and is unlikely to vote for Bitcoin ETF approval, which would further legitimize Bitcoin as an alternative store of value.
Approval could allow the entire crypto industry to take off, but Gensler still sees more stringent compliance as needed, making approval a long shot, according to his December 2023 comments. From a political perspective, Democrats have little incentive to approve a product that would provide validation to Bitcoin.
ETFs Approval Impact: $14 Billion Crypto Influx
Since traders began betting on ETF approval in September 2023, approximately $14 billion of extra fiat and leverage has entered crypto markets. While some of this relates to easier Fed policy, Matrix estimates $10 billion is specifically linked to ETF expectations.
If the SEC denies any ETFs, cascading liquidations could occur as Matrix expects most of the added $5.1 billion Bitcoin futures longs to unwind. This could spark a 20% Bitcoin price plunge quickly back to the $36,000-38,000 range.
Matrix recommends traders hedge long positions or short Bitcoin if no approvals materialize by January 6. Buying $40,000 strike put options for the end of January or outright shorting Bitcoin through options are advised.
Despite potential ETF denials and subsequent selloffs, Matrix believes Bitcoin will close 2024 higher than its $42,000 starting level, given historic strength in election and mining years. The long-term adoption trajectory remains upbeat, barring any major shakeout from unmet ETF expectations in the short term.
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