After an early positive start to 2024, crypto prices took a turnaround on Wednesday, leaving investors and analysts scrambling for answers.
Earlier in the week, Bitcoin price had seen a rally, fueled by growing anticipation over the possibility of a Bitcoin ETF being approved by the US Securities and Exchange Commission. However, the mood changed as the value of Bitcoin (BTC) fell 8% to around $40,800 early Wednesday, down from its peak of nearly $46,000 on Tuesday.
Some attribute this downturn to a report from Matrixport, a crypto financial services platform. Matrixport’s analysis suggested that the SEC is likely to reject all Bitcoin spot ETF applications in January. However, ETF experts are skeptical of the company's results and describe the speculation as misguided.
Analysts at Matrixport said the SEC voting group is “dominated by Democrats” and “Chairman Gensler is not in favor of crypto in the US,” making ETF approval a long way off.
Read more: Fees, Seeds and APs: What we know – and don’t know – about the planned Bitcoin ETFs
Matrixport added that a denial from the SEC will lead to “cascading liquidations” as we expect the majority of the $5.1 billion in additional Bitcoin futures to be liquidated with the long perpetual position.
“We could see Bitcoin prices decline by -20% very quickly and fall back to the $36,000/$38,000 area,” Matrixport added.
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, said Matrixport's claims made more sense in the fall. Given the extensive meetings the SEC has held with potential issuers, the products are all but a done deal and cannot be influenced by the highest levels of government.
While traders may have been spooked by Matrixport's pessimism, other analysts say there are other factors at play.
“A more likely reason for the decline is an overheated market,” said Noelle Acheson, author of the Crypto is Macro Now newsletter. “The BTC basis – the spread between futures price and spot price and an indicator of trader sentiment – had reached high levels even on the normally sober CME.”
Premiums on Bitcoin futures contracts reached more than $2,000 on Tuesday, a sign that some experts say indicates increased interest in the asset.
Typically, the spot and futures markets for Bitcoin trade at the same price,” said Michael Zhao, a researcher at Grayscale. “However, since the CME futures price for Bitcoin is higher compared to the spot price, one might assume that there is institutional expectation of a market event such as the approval of the spot Bitcoin ETF since it was bid so heavily.”
Matrixport may be pessimistic about the ETF prospects, but the company said it is confident that regulators will green light another crypto operation in 2024: a relaunched version of the bankrupt FTX exchange.
“While the announcement of FTX’s winning bid could occur in December 2023, we expect the exchange to be operational in May or June 2024,” Matrixport analysts wrote in a research note published in November 2023.
In its most recent restructuring plan, released in mid-December 2023, FTX did not specify whether it would attempt to restart the exchange.
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