Bitcoin Dumps on Its Fifteenth Birthday as Matrixport Takes an Axe to the ETF Approval Timeline

January 3, 2024 jasabacklink News 0

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

Bitcoin – that purest form of money to crypto maximalists and a veritable financial plague to its detractors – turns 15 today, based on the first Bitcoin block that was mined on the 03rd of January, 2009. However, this otherwise auspicious occasion has been utterly ruined by a decidedly bearish take from Matrixport, a crypto financial services and analysis firm, on the imminent launch prospects of some of the first spot Bitcoin ETFs in the US.

As we’ve been noting ad nauseum, the launch of spot Bitcoin ETFs in the US would make it extremely convenient for institutional investors, including pension funds, to gain exposure to Bitcoin without the myriad of pitfalls associated with futures-based ETFs, where the contracts for the months ahead are usually priced at a premium to the spot price in what is known as contango, leading to progressively expensive roll-overs as the front-month contract expires and the next one takes its place, thereby contributing to ETF underperformance over time.

Expectations regarding the imminent launch of spot Bitcoin ETFs in the US have prompted a veritable volley of bullish prognostications vis-a-vis the price of the world’s preeminent cryptocurrency. For instance, AllianceBernstein now expects Bitcoin to hit $150,000 in 2025, courtesy of the launch of these new spot ETFs and the upcoming halving event in April 2024, when the reward for mining Bitcoin will again be cut in half in what is a regular 4-year cycle. Moreover, Bernstein analysts continue to expect Bitcoin to hit $80,000 by the end of 2024 and $150,000 in 2025.

As we noted in a previous post, following a rap on its proverbial knuckles from the US judicial system, the SEC has tempered its blatantly anti-crypto stance in recent days and has actively engaged with financial firms seeking to launch spot Bitcoin ETFs. However, the SEC is still creating legally tenable hurdles in the path of these investment vehicles. For instance, the apex financial regulator in the US has demanded that all spot ETF applicants sign an agreement with an Authorized Participant (AP) – a designated financial entity that acts as an intermediary by converting Bitcoin to cash and vice versa – as well as adhere to a cash-based creation/redemption model, where an AP deposits cash equivalent to the net value of a new unit of spot ETF that is being created, allowing the fund to then buy the underlying asset (in this case, Bitcoin). In the case of redemption, the fund sells the pertinent amount of Bitcoin and transfers the resulting cash amount to an AP, which then transfers that cash to the customer. The SEC has presumably imposed these conditions so as to minimize the number of intermediaries dealing with the actual cryptocurrency.

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. This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.

This brings us to the crux of the matter. In a fresh report, Matrixport claims that the SEC will reject all spot Bitcoin ETF applications in January 2024 due to significant hurdles and uncertainties that might only be resolved by the second quarter of 2024.

As per Matrixport’s calculations, around $14 billion have flown into the Bitcoin ecosystem since September 2023, with $10 billion of these inflows directly related to the anticipation around the upcoming spot ETFs. Consequently, any delays in the ETF approvals beyond the first week of January might well result in a 20 percent correction in the price of the world’s preeminent cryptocurrency.

On a lighter note, perhaps today’s carnage was inevitable, especially as Jim Cramer – that most useful of contrarian indicators – has just turned bullish on Bitcoin’s prospects.

Update: Matrixport’s Contradictions on Spot Bitcoin ETF Approvals

There is apparently something seriously wrong at Matrixport. After all, the firm has published a bullish and bearish note on the prospects of spot Bitcoin ETF approvals within hours of each other!

What’s more, Matrixport’s note that predicts a delay in ETF approvals is filled with inconsistencies. The DC Court of Appeals has already ruled that, given the connection between the spot and the futures market, the surveillance sharing agreements with Coinbase, which constitutes just around 11 percent of the spot market, is a moot question.

Moreover, crypto-focused lawyers continue to expect the SEC’s approval for spot Bitcoin ETFs in January.

Finally, Bloomberg’s Eric Balchunas notes that he has heard nothing to indicate that ETF approvals are not imminent.

Matrixport should immediately come out with a press release to clarify what exactly happened and how a manifestly undercooked report could have been cleared for publication.

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