The U.S. Securities and Exchange Commission (SEC) might end up rejecting all applications for a spot Bitcoin exchange-traded fund (ETF) because “they fall short of a critical requirement,” digital asset management firm Matrixport wrote in a Jan. 3 note.

This comes a day after Matrixport said Bitcoin could pump to $50k before the weekend.

Instead, the firm stated that the regulator might approve these applications by this year’s second quarter.

Why will the SEC reject the applications?

The platform pointed out that SEC Chair Gary Gensler’s attitude towards crypto remains negative as he has consistently noted the industry’s lack of compliance.

According to the firm, Gensler’s consistent emphasis on the industry’s regulatory compliance gaps signals a potential vote against the ETF, which could otherwise catalyze widespread investment in crypto.

“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,” Matrixport said.

Matrixport further highlighted that most voting commissioners approving such funds align with the Democratic party, a faction known for harboring anti-crypto sentiments. Notably, figures like Senator Elizabeth Warren, a prominent Democrat, have drawn criticism from stakeholders due to her less favorable stance on the crypto space.

Additionally, Matrixport emphasized that the regulatory authorities lack political incentives to greenlight a spot ETF, which would confer legitimacy upon Bitcoin as an alternative store of value. This absence of motivation raises doubts about the likelihood of swift approval by regulatory bodies.

This prediction contradicts the general sentiments in the market, with several observers suggesting that the regulator might approve the various pending applications by the end of the week.

BTC may lose 20% following disapproval

Matrixport stated that BTC’s price could fall to as low as $36,000 if the SEC rejected the applications.

“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,” Matrixport added.

Due to this, the firm advised investors to hedge their long exposure by buying the $40,000 strike puts for the end of January or even taking short positions against the asset’s price.

At the time of press, Bitcoin is ranked #1 by market cap and the BTC price is down 5.99% over the past 24 hours. BTC has a market capitalization of $836.57 billion with a 24-hour trading volume of $41.37 billion. Learn more about BTC ›

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Market summary

At the time of press, the global cryptocurrency market is valued at at $1.64 trillion with a 24-hour volume of $97.84 billion. Bitcoin dominance is currently at 51.14%. Learn more ›