• Crypto investment firm Matrixport said in a report the SEC will reject applications for spot bitcoin ETFs this month.
• The firm doesn’t anticipate approval until at least the second quarter of 2024
• The market has been expecting approval, and regulators’ rejection could crash prices by 20%.

Cryptocurrency players have been expecting the US Securities and Exchange Commission to approve a slate of spot bitcoin ETFs in January, but one crypto firm isn’t so optimistic.

In a report published Tuesday, Matrixport said the SEC is poised to reject applications for spot bitcoin ETFs this month, and new products won’t get the green light until at least the second quarter of 2024. Such a rejection would come as a surprise to the market, and it could result in a steep crash in bitcoin’s price.

“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,” the research firm said.

“We could see Bitcoin prices declining by -20% very quickly and falling back to the $36,000/$38,000 range,” Matrixport added. The researchers forecast that a denial from the SEC could spark “cascading liquidations,” and most of the $5.1 billion in perpetual long bitcoin futures could unwind.

They note that SEC Chair Gary Gensler hasn’t embraced cryptocurrency, and he still sees a long road ahead for the industry to mature.

A spot bitcoin ETF, market experts say, would accelerate crypto’s development.

From a political standpoint, Matrixport said Gensler and the Democrat-heavy group of voting Commissioners are unlikely to want to legitimize bitcoin as a store of value.

Of the $14 billion of extra fiat and leverage that’s been deployed into crypto since September, researchers estimate that $10 billion of that could be tied to hopes for a spot bitcoin ETF approval.

Stefan Rust, the chief executive of economic data firm Truflation, echoed Matrixport’s prediction that the government isn’t ready to green-light a spot bitcoin ETF – especially if it entails giving multiple providers simultaneous approval.

“Governments and regulators haven’t yet identified how they can exert control over cryptocurrencies,” Rust said in a note Wednesday. “No doubt they are looking for more time and choke points to inhibit access to cryptocurrencies from a decentralized system.”

To Matrixport, if regulators do not hand down any approvals by January 5, traders should hedge their long exposure by buying $40,000 strike puts for the end of the month, or even shorting bitcoin via options.

That said, should the SEC deny applications for spot bitcoin ETFs, Matrixport expects bitcoin prices to still end the year higher than $42,000, given bullish tailwinds including the US election and developments in bitcoin mining such as this year’s halving event.

Bitcoin climbed more than 150% in 2023. On Wednesday, the token was down by 5%, trading around $43,780.