Speculations About ETF Approval Shakes Bitcoin, Resulting in $500 Million Liquidation
Rumors that the SEC might postpone spot Bitcoin ETF approval caused a massive drop in BTC value, leading to liquidations even though experts have since debunked it.
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Bitcoin fell as low as $40,000 on Wednesday after speculations emerged that the Securities and Exchange Commission may not approve a spot Bitcoin ETF by the January 10 deadline. The crash in value resulted in liquidations of over $400 million for crypto traders.
Rumors of the SEC postponing ETF approval first emerged in a Matrixport report where the researchers of the crypto firm predicted that the regulator would reject applications again. It noted that despite the several meetings and amendments between prospective issuers and the SEC, current applications fail to meet critical requirements. The Matrix on Target report predicted approval would likely come in Q2 of 2024.
Although there was no strong backing for its prediction, the prediction quickly circulated, triggering a massive drop in BTC value. The flagship asset fell from above $45k to around $40k before recovering.
Prediction Attracts Criticism
However, experts have debunked the prediction as unfounded, with the crypto community questioning Matrixport's motives. Bloomberg ETF analyst Eric Balchunas denied that there had been anything to suggest that the SEC would not approve the ETFs. He reiterated that there is still a 90% chance of approval.
Meanwhile, Fox Business journalist Eleanor Terret also reported that the SEC met with exchanges Nasdaq, NYSE, and Cboe on Wednesday. The report noted that sources close to the proceeding expect the SEC to start issuing approval as early as Friday, January 5.
"ETF analysts and issuers alike remain confident that a favorable decision from the SEC will be made on or before January 10, as the SEC continues to meet with key players on the matter."
With speculations of market manipulations, Matrixport CEO Jihan Wu has denied that the crypto firm had any say in the report. According to him, the analysts operate independently, and the report was for the firm's clients to keep them informed about the risks in the digital asset space. He also added that a Bitcoin ETF approval is inevitable.
"In the long term, Bitcoin will always prevail. In my opinion, the approval of a Spot ETF by SEC, which will attract fresh investment into Bitcoin, is inevitable."
What if the SEC Rejects the Application?
Although the crypto market has recovered, and Bitcoin is now up to $43k, the market reaction to the rumors of non-approval shows what could happen if the SEC delays making a decision. Over $500 million was liquidated on Wednesday after the sudden drop, and there were sell-offs of several crypto stocks.
Even Matrixport researchers acknowledged the effect such refusal would have on the market. The report noted that it could result in cascading liquidations and that the bitcoin price could drop by as much as 20% to return to the $36k to $38k range. However, it still expects Bitcoin to have a positive 2024 and finish the year higher than it started.
