By
Steve Muchoki
May 9th, 2024
Matrix on Target raises concerns about the potential market impact if the SEC rejects all Bitcoin ETF proposals by the January deadline.
As the crypto community eagerly anticipates the decision on Bitcoin Exchange-Traded Funds (ETFs) by the Securities and Exchange Commission (SEC), Matrix on Target has suggested the possibility of a rejection of all applications by the January deadline. Despite Matrixport’s optimistic outlook in 2023, projecting Bitcoin to reach $50,000 with SEC approval, recent developments have led the firm to believe that rejection is more likely.
Matrixport’s Analysis for Bitcoin ETF Rejection
Matrixport, a company that has consistently defied consensus expectations, now argues that all ETF applications fall short of a critical requirement necessary for SEC approval. While there have been multiple meetings between ETF applicants and SEC staff, resulting in refiled applications, Matrix on Target highlights that critical leadership at the SEC, currently dominated by Democrats, may play a pivotal role in the decision-making process.
Additionally, SEC Chairman Gary Gensler, known for his cautious approach to crypto regulation, has not embraced the idea of crypto in the U.S. Matrixport suggests that Gensler’s comments in December 2023 indicate a belief that the industry requires more stringent compliance measures. Therefore, from a political standpoint, Matrixport noted that legitimizing Bitcoin as an alternative store of value through an ETF approval may not align with the SEC’s current perspective.
Contrary to Matrixport’s analysis, TD Cowen’s Washington Research Group argues that the SEC’s approval of a Bitcoin ETF is a “political necessity.” It posits that the approval would solidify the SEC’s position as a regulator in the crypto space before Congress considers more extensive legislation.
The group also suggests that the SEC would prefer not to face a legal challenge to its refusal to approve Bitcoin ETFs.
The Risk of SEC Rejection and Market Impact
Matrix on Target raises concerns about the potential market impact if the SEC rejects all Bitcoin ETF proposals by the January deadline. Traders who have been anticipating approval since September 2023 have deployed at least $14 billion in fiat and leverage into the crypto market, with $10 billion specifically related to ETF approval expectations.
The firm suggests that a denial by the SEC could trigger cascading liquidations, potentially leading to a -20% decline in Bitcoin prices, falling back to the $36,000/$38,000 range. Given the uncertainty surrounding SEC approval, Matrixport recommends that traders hedge their long exposure.
The firm suggests buying $40,000 strike puts for the end of January or even going outright short on Bitcoin through options, especially if there are no indications of approvals by January 5.
Even in the event of an ETF denial, Matrixport remains optimistic about Bitcoin’s long-term performance. The firm expects Bitcoin prices to be higher by the end of 2024 than the $42,000 at the beginning of the year, citing positive trends in U.S. election years and Bitcoin mining years.
Meanwhile, Bitcoin is currently trading at $42,686, down by 5.92% decrease in the last 24 hours. The coin’s market valuation is $834.6 billion, with a 24-hour trading volume of $41.2 billion.