A research report circulating on social media Wednesday cast doubt on near-term approval of a bitcoin spot ETF, with some analysts speculating a subsequent selloff was fueled by its skepticism.

Bitcoin BTCUSD, -5.20% most recently traded at $42,941 after falling under $42,000 after reaching $45,913 Tuesday, a level not seen since April 2022, according to CoinDesk data. Shares of crypto bourse Coinbase Global Inc. COIN, -1.40% slumped 2%, while Microstrategy Inc. MSTR, -7.74%, a software company with large bitcoin holdings, fell 7%.

Tuesday’s gains came amid rising hopes the Securities and Exchange Commission will approve the spot bitcoin ETF by Jan. 10, when the agency must make a final decision on an application from ARK Investments and 21Shares, and the report argued that the market’s enthusiasm could be premature.

Markus Thielen, head of research at Matrixport, laid out his doubts over a near-term spot ETF approval in a report published Tuesday.

Despite “frequent meetings” between ETF applicants and SEC staff recently, he said they “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.”

Thielen explained that the five-person voting commissioners leadership vital to the ETF’s SEC approval is “dominated by Democrats” and as SEC Chair [Gary] Gensler is not embracing crypto in the U.S., it’s possibly a “very long shot” to expect that he would vote to approve Bitcoin Spot ETFs,” he said.

Thielen’s thesis received heavy pushback on social media, where investors pointed out that Matrixport had published a bullish report on a possible approval of the spot ETF published the same day.

Responding to criticism late Wednesday morning, Thielen granted that his view was “massively out of consensus” and not based on inside knowledge at the SEC or from potential issuers.

Neither Thielen nor Matrixport responded to email requests for further comment.

Ian Katz, a policy analyst at Capital Alpha Partners, told MarketWatch that while he believes a bitcoin spot ETF will ultimately be approved, investors should prepare for the possiblitiy that regulators drag out the process for several more months.

“There’s a big wildcard which is [SEC Chair] Gary Gensler, who has shown no signs of softening his views toward crypto,” Katz told MarketWatch in an interview. “So the idea that he may put them through some more pain for a few months is not at all far-fetched.”

Thielen noted that since bets began on the ETF approval back in September 2023, crypto has seen an influx of $14 billion or more in extra fiat and leverage. While some of that may be tied to hopes for Federal Reserve rate cuts, “of those $14 billion of additional longs, $10 billion might be related to the ETF approval expectation,” he said.

“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,” said the analyst.

Matrixport founder Jihan Wu defended the the report in a post on X Wednesday afternoon writing that “Matrixport’s analysts operate independently, expressing their opinions without any influence or interference from management.”

“Matrixport has been consistently advising our clients to be mindful of risks and leverage, especially given the market’s volatility spurred by expectations surrounding Exchange-Traded Funds (ETFs),” he added. “This volatility is evident in the perpetual market’s high funding fees and the recent decline in crypto-related stocks in the stock market over the past two trading days before today.”