Crypto Markets Rebound After Bitcoin ETF Scare

After a major tumble on Jan. 3—in which crypto prices dipped sharply in the wake of one analyst’s speculation that no Bitcoin ETF would be approved by the SEC after all—the markets have recovered today (Jan 4).

Just after 5:30 am EST on Jan. 3, Bitcoin and other cryptocurrencies tumbled in reaction to the prediction of a Matrixport analyst that the U.S. Securities and Exchange Commission would initially reject all of the Bitcoin spot ETF applications currently under consideration.

The analyst, Markus Thielen, expressed his views starkly. “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,” he wrote in the “Matrix on Target” newsletter.

Thielen offered reasons from the world of politics for this outlook. “The current five-person voting Commissioners leadership critical for the ETF approval of the SEC is dominated by Democrats. 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. 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 continued.

In response to the report, Bitcoin prices plunged from $45,400 to as low as $40,500, then bounced back to $42,400 within four hours. The token slid nearly eight percent, and nearly $500 million of open positions were liquidated as the price of Bitcoin fell, and investors closed out exposure on both the long and the short side.

On Jan. 3, Ether and SOL dumped as well, dropping from around $2,370 to $2,220 and $108 to $96 as the report spread around the world.

But markets have now rallied, with Bitcoin at $44,000, Ether at $2,276, and SOL at $106 at the time of this writing.

Part of what has encouraged the rally is the space’s reaction to the Matrixport analysis. Observers like Bloomberg ETF analyst Eric Balchunas noted that Matrixport had completely reversed its views about the likelihood of BTC spot ETF approval from the day before. While Matrixport has stood by Thielen and his analysis, hopeful ETF applicants continue to file administrative paperwork with the SEC. Balchunas has long said there is a 90% likelihood that an ETF will be approved in January.

Also on Jan. 4, the Federal Reserve released its December policymaker meeting minutes. They acknowledged that the job market is slowing down and inflation is cooling and that decreases in the key interest rate could come later in the year.

While markets tend to react with optimism to the promise of lower borrowing costs, in the past, monetary easing after a period of inflation has sometimes been followed by an economic recession.