Crypto investors awoke to falling prices on Tuesday as the predicted correction for Bitcoin ( [BTC](https://www.kitco.com/price/crypto/bitcoin)) and the broader cryptocurrency market came ahead of the Securities and Exchange Commission’s (SEC) upcoming ruling on multiple spot BTC ETF filings, catching traders off guard.Many are attributing the sudden price dump to FUD (fear, uncertainty, and doubt) sparked by a [report](https://www.matrixport.com/institutions/research/matrix-on-target/813) from Markus Theilen, head of research at Matrixport, which suggests that the SEC will reject the spot BTC ETF applications again.“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,” Thielen said.“This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.” He noted that the “five-person voting Commissioners leadership critical for the ETF approval of the SEC is dominated by Democrats,” and highlighted that “SEC Chair Gensler is not embracing crypto in the US, and it might even be a very long shot to expect that he would vote to approve Bitcoin Spot ETFs.” “An ETF would certainly enable crypto overall to take off, and based on Gensler’s comments in December 2023, he still sees this industry in need of more stringent compliance,” Thielen said.
“From a political perspective, there is no reason to approve a Bitcoin Spot ETF that would legitimize Bitcoin as an alternative store of value.” He suggested that $10 billion of the $14 billion in extra fiat and leverage that has been deployed into crypto since September “might be related to the ETF approval expectation,” and warned that an ETF rejection could result in rapid price depreciation.“If there is any denial by the SEC, we could see cascading liquidations as we expect most of the $5.1 billion in additional perpetual long Bitcoin futures to be unwound,” he said.“We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range.” Thielen recommended that if an approval was not announced by Friday, traders should “hedge their long exposure by buying the $40,000 strike puts for the end of January or even going outright short Bitcoin through options.” “Even if the SEC would deny the ETF, we still expect Bitcoin prices to be higher by the end of 2024 than when they started the year ($42,000), as US election years and Bitcoin mining years tend to be positive,” Thielen concluded.
In response to the report and the subsequent downturn in the market, Bloomberg Intelligence senior ETF analyst Eric Balchunas said they still give the odds of approval at 90%.“People tagging me like crazy on this ‘rejection’ report,” Balchunas [tweeted](https://twitter.com/EricBalchunas/status/1742540501150994432).“We have heard nothing to indicate anything but approval but I want to give the guy the benefit of the doubt so I’m asking if he has any sources or if he just speculating.He seems to be [a] Bitcoin bull and recently tweeted [that] ‘executives’ said approval likely.So unsure why he flipped.” He said that anticipating a rejection of the applications suggests that “multiple mainstream news reporters with multiple sources on the inside of this also have it wrong,” and noted that while he is not saying it’s impossible, it “overturns a LOT of good intel.” Balchunas told Cointelegraph that if the applications are not approved in the next two weeks, the more likely reason is because the SEC needs more time.“We haven’t gone further than 90% because of the possibility […] I don’t think that we’re going to see a full-out denial,” he said.“This would be the rug pull of the decade,” he added.
“Everybody put in a lot of work in this, especially over the holidays.Sadistic might not even be strong enough a word for it.” He also suggested that a denial could result in new lawsuits similar to the one filed by crypto asset manager Grayscale against the regulator.
“People have spent too much money and tried too hard to give up now,” Balchunas said.“So yeah, it would not be over.
I don’t even think there’d be a cooling-off period this time.I think there’d be hell.” More than anything, the report and ensuing sell-off highlighted that the crypto market remains volatile and is highly influenced by popular narratives.This market is so volatile that a single entity sharing their opinion that an ETF will get rejected is enough to trigger the liquidation cascade that the same irrelevant entity also predicted would come with the ETF rejection.— The Wolf Of All Streets (@scottmelker) [January 3, 2024] [According](https://twitter.com/WClementeIII/status/1742524344008335365) to Will Clemente, founder of Reflexivity Research, more than $1 billion in open interest (OI) for Bitcoin was wiped out in a single candlestick after the Matrixport report circulated.[Data](https://www.coinglass.com/LiquidationData) provided by Coinglass shows that there was $500 million in liquidations in less than an hour, with 95% of those being long positions..
