LUCKNOW (CoinChapter.com) — In contrast to the broad optimism across the crypto industry, Matrixport analyst Markus Thielen predicts the US Securities and Exchange Commission (SEC) will reject all Bitcoin spot exchange-traded fund (ETF) proposals when they come up with a decision in January.
Democrats’ Dominance at SEC – A Hurdle for Bitcoin ETF Approval
Thielen based his perspective on the political dynamics around crypto regulation and compliance concerns held by SEC Chair Gary Gensler.
According to the report, the current SEC leadership may also present a roadblock for Bitcoin ETF approval. The five-member commission is dominated by Democrats, including Chair Gary Gensler, who has expressed skepticism towards cryptocurrencies.
“From a political perspective, there is no incentive for the SEC to approve a Bitcoin spot ETF, which would further legitimize Bitcoin as an alternative store of value,” Thielen wrote, adding:
“Since traders began betting on ETF approval back in September 2022, we estimate at least $14 billion of additional fiat and leverage has flowed into crypto markets.”
With Democrats firmly in control of the commission and crypto regulation still a divisive issue in Washington, Thielen sees little political upside for Gensler to approve a spot Bitcoin ETF at this juncture.
SEC Chair Gensler’s Skepticism Casts Shadow on ETF Prospects
While an ETF would accelerate cryptocurrency adoption in the U.S., Gensler still sees the industry as needing more stringent regulation.
“SEC Chair Gensler is not embracing crypto in the U.S., and it might even be a very long shot to expect that he would vote to approve bitcoin spot ETFs,” Thielen wrote in the report. “This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.”
Gensler echoed this view in a December interview. He said that there had been “far too much fraud and bad actors” in the crypto space and called out non-compliance with securities laws and anti-money laundering regulations.
Over a dozen asset managers – including BlackRock, Fidelity, Valkyrie, and VanEck – have applications pending for a spot Bitcoin ETF. Such an ETF would allow mainstream investors to gain direct exposure to Bitcoin without having to hold the asset itself.
Cascading Liquidations Possible if Rejection Occurs
If rejected in January, Thielen expects “cascading liquidations” as billions worth of perpetual long Bitcoin futures positions get rapidly closed out. This selling pressure could lead Bitcoin’s price to plunge around 20%, back into the $36,000 to $38,000 range.
While the short-term price impact may be negative, Thielen remains constructive on Bitcoin’s long-term trajectory. Drawing on historical U.S. election cycles and Bitcoin halving, Matrixport anticipates Bitcoin could reach over $100,000 by the end of 2024 despite any near-term regulatory roadblocks.
The cryptocurrency community has been eagerly anticipating a decision on spot Bitcoin ETF applications by Jan. 10. The positive sentiment and speculation around potential approval has fueled Bitcoin’s price recovery in recent months. In early January, Bitcoin’s price crossed the $45,000 threshold for the first time since April 2022.
However, Bitcoin has retreated 4.9% over the past 24 hours, back to $42,698 as of January 3rd.
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