Bitcoin falls 8% on anti-ETF news, analysts remain confident

After an early positive start to 2024, crypto prices took a turn Wednesday, leaving investors and analysts searching for answers.

Earlier in the week, bitcoin’s price had seen an upswing, fueled by growing anticipation around the possibility of the US Securities and Exchange Commission approving a bitcoin ETF. However, the mood shifted when bitcoin’s (BTC) value dropped by 8% early Wednesday to around $40,800, falling from its highs of close to $46,000 on Tuesday.

Some have attributed 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 findings, labeling the speculation as misguided.

Matrixport analysts said the SEC’s voting group is “dominated by Democrats” and “Chair Gensler is not embracing crypto in the US,” and therefore an ETF approval is far off.

Matrixport added that a denial from the SEC will lead to “cascading liquidations as we expect most of the $5.1 billion in additional perpetual long Bitcoin futures to be unwound.”

“We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range,” Matrixport added.

Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, said Matrixport’s claims would have made more sense back in the fall. Given the extensive meetings the SEC has held with potential issuers, the products are all but a done deal, safe for interference from 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 drop is an overheated market,” Noelle Acheson, author of the “Crypto is Macro Now” newsletter, said. “BTC basis — the spread between the futures price and the spot price, and an indicator of trader sentiment — had reached stretched levels, even on the usually sober CME.”

Premiums on bitcoin futures contracts hit more than $2,000 Tuesday, a sign some experts say points to increased interest in the asset.

Usually the spot and futures market for bitcoin trade at the same price,” Michael Zhao, researcher at Grayscale, said. “However, because the CME futures price of bitcoin is higher relative to the spot price, one could hypothesize that there is institutional anticipation for a market event like the spot bitcoin ETF approval, given its been bid up so hard.”

Matrixport may be bearish on ETF prospects, but the firm said it is confident that regulators will green light another crypto operation in 2024: a rebooted version of the bankrupt FTX exchange.

“While the announcement of FTX’s winning bid could occur in December 2023, we project the exchange to be operational by May or June 2024,” analysts from Matrixport wrote in a research note published in November 2023.

In its latest reorganization plan released in mid-December 2023, FTX did not include information about whether it would attempt to restart the exchange.

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