The U.S. Securities and Exchange Commission (SEC) is expected to reject all applications for spot bitcoin exchange-traded funds (ETFs) this month, according to Matrixport, a well-known provider of cryptocurrency investment services. The company cites the need for stricter industry compliance and links this gloomy prognosis to SEC Chair Gensler’s cautious posture towards cryptocurrencies.

SEC Chair Gensler’s Skepticism

In a recent statement, Matrixport drew attention to the Democratic majority among the five voting Commissioners currently in charge of making important decisions at the SEC. The business asserts that it will be difficult to approve bitcoin spot ETFs given Gensler’s remarks from December 2023, which seem to show a lack of enthusiasm for cryptocurrencies.

“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,” said Matrixport. “From a political perspective, there is no reason to approve a bitcoin spot ETF that would legitimize Bitcoin as an alternative store of value.”

Market Impact and ETF Expectations

The establishment of a spot Bitcoin ETF in the United States, which was much expected, contributed to a boom in Bitcoin values that saw a 160% increase in 2023 and reached levels not seen since April 2022. Roughly $10 billion of the $14 billion that has been invested in cryptocurrency since September, according to Matrixport, is associated with the anticipation of ETF approval.

Markus Thielen, an analyst at Matrixport, believes that the SEC would reject every petition for a bitcoin spot ETF in January, which is against the consensus of the market. Thielen highlights the political dynamics and compliance issues at play while drawing attention to important requirements that are still unmet in the applications.

“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,” said Thielen. “This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January.”

Potential Ramifications of Rejection

In the event that the SEC rejects the applications for bitcoin spot ETFs, Thielen expects a series of cascade liquidations that will unwind billions of dollars’ worth of perpetually long bitcoin futures. This might cause the price of Bitcoin to drop precipitously by 20% and return to the $36,000–$38,000 region.

Even with possible short-term turbulence, Thielen is still optimistic about 2024. Based on past trends in U.S. election years and Bitcoin mining cycles, Matrixport predicts that by year’s end, the value of Bitcoin will have surpassed $42,000, which will be a relief for long-term investors in the face of regulatory uncertainty.