On the first day of 2024, crypto traders had two reasons for celebration. The first reason, of course, was the start of the year, which was a cause of celebration for everyone in the world; the second was more centred around the crypto community because Bitcoin made a giant leap from the $42000 region to a recent high of $45,867.
The reason behind this jump can be attributed to investors putting money into Bitcoin because of the highly anticipated news of the possible upcoming approval of the spot Bitcoin ETF by the SEC on January 1, 2024.
You could say that it is only a matter of days before the crypto community gets the news it has long since been waiting for, and that is the SEC’s finally approving these spot Bitcoin ETF applications, which would put a much-needed positive sentiment back into the market and drive the prices of crypto tokens upward to new highs.
Well, while the anticipation still holds and every crypto enthusiast is sure of the eventuality of seeing the market swinging upward shortly, the events that transpired on January 3 dampened the mood of the market so hard, even if the after-effects of this event remain short-term it still caused mayhem in the crypto market that no one foresaw.
What is Matrixport?
Matrixport is an all-in-one crypto platform allowing customers to trade, invest, borrow, and store digital assets. They offer easy-to-use products like spot and leveraged trading, high-yield savings, curated funds, and secure custody.
The company claims it is known for its focus on user experience and accessibility, aiming to make crypto investing a rewarding experience for everyone.
We are providing you with this information about Matrixport because yesterday, they released a report stating that, according to their analysis, the SEC would not approve the current spot Bitcoin ETF applications and will say they need more time to complete their review process.
The firm said that according to their estimate of the $14 Billion worth of extra investment in the crypto market, especially in fiat and leverage, $10 billion might be related to the ETF expectations. But the firm believed that, be that as it may, we would only be able to spot Bitcoin ETFs listed in the market for a while.
The after-effects of this report
While it is still debated whether this caused immediate turmoil in the crypto market, the way the market reacted within minutes after this report was released indeed pointed many fingers toward the company’s recent announcement, which many in the crypto community believe was pretty premature and had no concrete basis towards it.
Whether they thought Matrixport was premature or not, the crypto market didn’t take this narrative positively.
The Bitcoin price took a surprisingly big fall and went down to as low as $40,800, approximately $5000 of its value, after social media turned ablaze with this news. Bitcoin is currently trading at $42,940 as of the time this article was written.
Coinglass, a firm that decodes the crypto derivatives market with real-time data and analysis, reported that the liquidation heatmap shows that over $514 million had been wiped out. Bitcoin took the brunt of this hit.
What is the Justification for this report?
After publishing the report, we are still determining what Matrixport hoped to achieve, but the full report is available on its website. We are going to give you a summarized version of what the report says:
“Matrix on Target expects a bumpy start to 2024 for Bitcoin, with a potential price dip fueled by the anticipated rejection of all Bitcoin Spot ETF applications by the U.S. Securities and Exchange Commission (SEC) in January.
While the market has been anticipating ETF approval since September 2023, Matrix believes the current applications need to catch up to crucial SEC requirements, leading to a delay until at least Q2 2024.
This rejection, coupled with the significant influx of funds ($14 billion, with $10 billion potentially linked to ETF expectations) into the crypto market since September, could trigger a cascade of liquidations, particularly among those who positioned themselves for price increases upon ETF approval. Matrix estimates a potential 20% drop in Bitcoin price, bringing it back to the $36,000-$38,000 range by January 5.
To mitigate potential losses, Matrix recommends hedging long positions with options, such as buying $40,000 put options or even shorting Bitcoin through options, if no ETF news emerges by January 5.
However, despite the anticipated January dip, Matrix maintains a bullish long-term outlook for Bitcoin, predicting a surge towards $50,000 by year-end, driven by factors like the U.S. election cycle and the next Bitcoin mining halving event.”
The firm also stated that five of the voting members in the committee who will approve the application of spot Bitcoin ETFs are Democrats, and Democrats are well known for their anti-crypto stance. It is also known to everyone in the crypto community that SEC’s head, Gary Gensler, is also a known critic of cryptocurrency who says that the industry needs more regulations to thrive in the U.S. market.
He wants crypto to be more regulated and have a centralized approach, which generally goes against the ethos of crypto and blockchain technology, known for its decentralized characteristics.
How did the Crypto community react to this news?
The report from Matrixport faced intense criticism from Alex Thorn, the Head of Research at Galaxy Digital, who found it perplexing and illogical. In collaboration with Invesco, Galaxy Digital is one of over a dozen firms seeking approval from the SEC for a spot bitcoin ETF.
Scott Melker, a trader, analyst, and podcast host, needed clarification about the rationale behind Matrixport’s perspective. Some individuals argued that the liquidations observed on that day were not unusual and were, in fact, typical behaviour in a Bitcoin bull market.
Contrary to the idea that the ETF report triggered the Bitcoin sell-off, crypto-focused litigator Joe Carlasare asserted that the market correction resulted from the natural ebb and flow, emphasizing that assets like Bitcoin don’t consistently rise. Carlasare suggested that the sell-off was more of a liquidity grab, causing a long squeeze due to an overbought market.
Other analysts believe that the SEC will likely approve the applications for Bitcoin ETF in the next ten days. The speculation is based on discussions with representatives of exchanges and legal precedent.
In October, the SEC reconsidered its decision to reject Grayscale Investments’ spot Bitcoin ETF application after a judge deemed the rejection “arbitrary and capricious.”
James Murphy, the founder of Ludlow Street Advisors, anticipates multiple approvals on January 10, asserting that the SEC exhausted its arguments against Grayscale.
Murphy suggests that if the SEC provides a new reason for potential rejection, the court might view it as pretextual, reject it, and possibly consider sanctions against SEC lawyers.
Despite numerous applications from asset managers in previous years, the SEC has never approved a spot BTC exchange-traded product for listing and trading on a U.S. exchange.
In June 2023, BlackRock, the world’s largest asset management company, submitted a spot Bitcoin ETF application in the United States, reigniting interest in this investment vehicle and prompting speculation about the SEC’s necessary actions.
Matrixport, in their prediction, said that even if the rejection from the SEC will cause further decline, it would not cause a drastic downturn. They believe that in case of a rejection, the market would see a further $5.1 billion in additional perpetual long Bitcoin futures to be liquidated, which could cause Bitcoin price to decline a further 20% to the $36000-$38000 region.
Firms that have filed for listing of spot Bitcoin ETF
BlackRock, Van Eck, Grayscale, Fidelity, ARK Invest, Valkyrie, Franklin, Hashdex, WisdomTree, Invesco, and Galaxy are the famous names that have filed for a spot Bitcoin ETF approval. These firms have also submitted the updated Form S-1 application according to the newer SEC guidelines.
Among these firms, BlackRock and Grayscale Investment are touted to be the front runners who will see their applications getting approved by the SEC first.
Our thoughts
Despite the prevailing market downturn and a bearish short-term outlook, a favourable long-term perspective exists for Bitcoin. It is essential to remain composed as the ongoing liquidation events are intended to eliminate leverage from the market by shaking out long positions.
For those who believe in the long-term potential of cryptocurrencies, it’s essential not to be overly concerned with the day-to-day fluctuations in the market. If the volatility is causing stress, taking a short break and stepping away might be a good idea.
It’s crucial to be prepared for the possibility of the Federal Reserve lowering interest rates in March, especially considering its timing around the Bitcoin halving event. This upcoming event may have significant implications, necessitating careful consideration and planning.
Contrary to some opinions, the sudden $4,000 drop in Bitcoin’s value isn’t solely attributed to panic following U.S. regulators’ rejection of a specific investment fund. This interpretation is supported by experts who believe this drop triggered approximately half a billion dollars in losses for those betting on a price increase.
Note: The information in the article is not intended to be used as financial or investment advice. We advise our readers to do their due diligence and seek financial advice from independent sources. The cryptocurrency market is volatile and, therefore, is considered a risky investment avenue. Spend what you can afford to lose, learn proper technical analysis methods, and conduct your research before investing in cryptocurrency.
