If the crypto community is in the dress rehearsal period for a spot ETF approval, then Wednesday definitely saw some jitters enter the market.
Bitcoin‘s price dropped from a morning high of around $45,000 right down to around $40,500 before recovering to $42,400.
The 8% drop marks one of the steepest falls since BTC began an upward momentum in October last year and wiped out more than $500m in long positions liquidated as the price dropped.
Open interest also took a $2 billion hit, with traders minimizing their exposure on both long and short positions.
It’s possible that fears over the long-mooted spot Bitcoin ETF drove the dump, with analysts predicting everything from multiple ETF applications being approved by the Securities and Exchange Commission (SEC) this week, approved on January 10, or simply rejected.
A report by Matrixport rebuffed the idea that spot ETFs are arriving in January.
The crypto investment service provider said late on Tuesday:
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.
The research team at Matrixport added:
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.
We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range.
However, the firm ultimately remains bullish on Bitcoin, adding: “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.”
Not everyone agreed with Matrixport’s verdict, with Bloomberg Senior ETF analyst Erc Balchunas saying, “We have heard nothing to indicate anything but approval.”
JUST IN: Bloomberg Senior ETF Analyst Eric Balchunas says "we have heard nothing to indicate anything but approval" pic.twitter.com/kqQZ4poGvf
— Bitcoin Magazine (@BitcoinMagazine) January 3, 2024
Robert Quartly-Janeiro, chief strategy officer of Bitrue, is an equity analyst, strategist, and economist with 15 years of experience across finance, investment, government, and management. Commenting on the BTC price, he told Techopedia:
“Digital asset markets have reacted sharply to research and comments that a BTC ETF will not get approval. Whilst the $3k sell-off is surprising for its ferocity and speed, it also feels a little pre-emptive given that the amount of information surrounding any approval, or not, is no more advanced than it was several weeks ago.
“Moreover, whilst BlackRock’s ETF application is anticipated to be the first approved or denied, the world’s largest asset manager with $10trn in AUM is not the only large asset manager with an application pending.
“Whilst some profit taking and de-risking is understandable, the volume of applications and where they come from is not insignificant or to be ignored.”