Bearish Bitcoin ETF Report Spooks Market—But Analysts Say Denial Is Unlikely

By Stacy Elliott

Bitcoin plunged by 7% Wednesday morning in the U.S., sinking as low as $41,804.95 before recovering slightly. At the time of writing, BTC is trading for $43,287.67, according to CoinGecko.

The impetus appears to be a report from digital asset manager Matrixport with an ominous title: “Why the SEC will REJECT Bitcoin Spot ETFs again.” The report, written by Matrixport Head of Research Markus Thielen, also appeared on the 10x Research blog under a much more tepid headline.

Neither Matrixport nor Thielen immediately responded to a request for comment from Decrypt.

“While we have seen frequent meetings between the ETF applicants and staff from the SEC, which resulted in the applicants refiling their applications, we believe all applications fall short of a critical requirement that must be met before the SEC approves,” the company wrote in its report. “This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.”

That last part about some of the Bitcoin ETF applications being ready for approval in the first half of 2024 didn’t do much to calm fears. The suggestion that none of the ETF applications will be approved in January was enough to stir up market panic.

This particular drop in Bitcoin price happened at an especially bad time. Matrixport estimates that at least $14 billion worth of cash has entered crypto markets because of all the Bitcoin ETF hype—which means a lot of traders who were long on Bitcoin just got liquidated.

In the past day, $576 million worth of long positions were liquidated according to Coinglass. And $553 million of it happened in the last 12 hours. The bearish report went out 7 hours ago, around 5 a.m. Eastern Time.

Vetle Lunde, a senior analyst at K33 Research, agreed that the catalyst appears to have been the Matrixport research.

“Leverage in the market was very high prior to the crash, with longs being the key aggressor, evident by funding rates and futures premiums pushing to annualized rates above 50%, as noted in our latest market update,” he told Decrypt. “This left the market extremely exposed to downside volatility, a typical long liquidation flush.”

But he added that he doesn’t necessarily agree with the prediction that the SEC will reject all the pending Bitcoin ETF applications.

“This opinion is going against consensus. Based on Grayscale's court win, and all back-and-forth between the SEC and issuers leading to updated S-1s and cash creations, a denial seems highly unlikely.”

The report also set off some sparring among analysts on X (formerly Twitter). Bloomberg Intelligence analyst Eric Balchunas, who’s been closely following what he’s coined “The Cointucky Derby” as firms vie to register a spot Bitcoin ETF, called foul.

In a reply to Thielen’s tweet about the report, he asked if he was “basing this off any source.” In a follow-up, he quoted one of Thielen’s own tweets from December 23 about having talked with two executives who had been in a meeting with the SEC and predicted the regulator could “grant approval in the first few business days of 2024.”

Edited by Guillermo Jimenez.

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