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⚡Bitcoin Spot ETFs Face SEC Rejection❌

Croxroad

04 Jan 2024 — 4 min read

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✴️ Matrixport Sounds Alarm on SEC's Stance

Matrixport, a provider of crypto investment services, is predicting that the U.S. Securities and Exchange Commission (SEC) will likely reject all applications for a spot bitcoin exchange-traded fund (ETF) this month. The firm points out that the current leadership of the SEC, consisting of five Commissioners, is predominantly Democratic, and SEC Chair Gensler is not seen as favourable towards embracing crypto in the U.S. According to Matrixport, the chances of Gensler approving bitcoin spot ETFs are considered slim.

Matrixport suggests that Gensler's perspective on the need for more stringent compliance in the crypto industry, as indicated in his comments from December 2023, aligns with the belief that approving a bitcoin spot ETF might not be politically favourable. The firm argues that from a political standpoint, there may be no incentive to approve a bitcoin spot ETF, as it could legitimise Bitcoin as an alternative store of value.

The expected approval of a spot BTC ETF in the U.S. had previously driven bitcoin prices to levels not seen since April 2022, concluding 2023 with a nearly 160% increase for the year. Matrixport estimates that a significant portion of the additional $14 billion invested in crypto since September may be linked to the anticipation of ETF approval, amounting to around $10 billion.

As of now, Bitcoin (BTC) is experiencing a nearly 7% decline, trading at $42,445, with the entire drop occurring within a few minutes around 12:00 UTC. However, it's worth noting that Galaxy Digital's Head of Research, Alex Thorn, strongly disagrees with Matrixport's assessment, describing it as "bewildering" and "nonsensical." Galaxy Digital, in collaboration with Invesco, is one of more than a dozen firms that have submitted applications to the SEC for a spot bitcoin ETF.

⛽ SEC ETF Doubts Trigger $400M Bitcoin Liquidation

On Wednesday, Bitcoin experienced an 8% decline, causing concern in the market, primarily fueled by uncertainties surrounding the potential approval of a spot Bitcoin (BTC) ETF. This drop erased all the gains made on January 1 and triggered a significant liquidation of positions across derivatives exchanges, totaling $500 million.

Analysts observed that as the chances of the ETF gaining approval diminished, the market entered a state of indecision. GreeksLive, an options analyst, remarked on this, stating that the dwindling probability of the ETF's approval led to a standstill in the market. Additionally, weakness in crypto mining stocks and a sell-off in various U.S. crypto-related stocks contributed to the growing scepticism among investors.

Last week, Reuters reported that sources suggested a possible approval of a Bitcoin ETF as early as "Tuesday or Wednesday." However, Matrixport, a financial services firm, countered the optimistic outlook, asserting that they believe none of the ETF applications meet a crucial requirement necessary for SEC approval. Matrixport expressed the expectation that the SEC would reject all proposals in January, adding that meeting the necessary criteria might be possible by Q2 2024.

Bitcoin's price trajectory reflected the uncertainty, starting the day at a high of $45,500 and subsequently dropping to as low as $40,550. However, the cryptocurrency managed to recover to $42,200. The market's reaction led to a $2 billion decrease in open interest, attributed to both liquidations and traders reducing exposure on both the long and short sides of the market.

📂 Are There Other Types of Crypto ETFs Beyond Bitcoin?

Outside of the United States, there is a diverse range of cryptocurrency exchange-traded products (ETPs). These include ETFs that offer exposure to a wide array of cryptocurrencies, extending beyond just bitcoin. Such products present investors with an opportunity to diversify their portfolios within the realm of digital assets, allowing them to explore various cryptocurrencies and crypto-related assets.

However, within the U.S., the ETF landscape is somewhat different. While there are ETFs tied to alternative cryptocurrencies such as ether, it's essential to note that these are specifically linked to futures-related products. In other words, investors in the U.S. have avenues for exposure to different cryptocurrencies, but these opportunities are currently limited to products based on futures contracts rather than direct ownership of the underlying assets.