As the deadline for approving spot bitcoin exchange-traded funds (ETFs) nears, traders are advised to hedge their long positions in anticipation of a potential rejection from the Securities and Exchange Commission (SEC). The SEC’s decision is of great importance for the future of bitcoin and has created a sense of anticipation within the crypto community.
While the possibility of spot bitcoin ETFs has generated excitement, regulators maintain a skeptical stance towards granting approval. Stefan Rust, CEO of Truflation, believes that the government is not ready to embrace these ETFs. SEC Chair Gary Gensler shares this sentiment and has expressed caution towards cryptocurrency, stating that the industry needs more time to mature.
Despite regulatory concerns, bitcoin experienced a significant increase in value in 2023, rising by 150%. This surge fueled hopes for spot bitcoin ETFs, but it is unlikely that approval will be granted before the second quarter of 2024. The delay in approval has raised concerns among traders, as a rejection could lead to a significant price decline.
Prominent crypto investment firm Matrixport predicts that the SEC will reject spot bitcoin ETF applications. They advise traders to hedge against this potential denial by considering options such as buying $40,000 strike puts or shorting bitcoin. Matrixport’s analysis suggests that a rejection could trigger “cascading liquidations,” potentially unwinding a significant portion of the $5.1 billion invested in perpetual long bitcoin futures.
The impact of a rejection goes beyond immediate market volatility. Governments and regulators are actively exploring ways to control access to cryptocurrencies, and a rejection would give them more time and opportunities to exert control over the decentralized financial system. Matrixport believes that Gensler and the Commissioners, who mostly belong to the Democratic Party, are unlikely to legitimize bitcoin as a store of value, further complicating the path to approval.
While traders prepare for a potential rejection, it is important to note that even if spot bitcoin ETFs are not approved, Matrixport expects bitcoin prices to end the year higher than $42,000. Positive factors such as the US election and advancements in bitcoin mining technology could support higher prices.
The uncertainty surrounding spot bitcoin ETFs has already affected the market. On Wednesday, bitcoin experienced a 5% decline, trading around $43,780. Traders are aware that an SEC rejection could trigger a more significant decline, potentially pushing bitcoin back into the $36,000/$38,000 range.
The approval of spot bitcoin ETFs holds significance beyond immediate price implications. If approved, these ETFs would provide a regulated and accessible way for institutional and retail investors to gain exposure to bitcoin, potentially accelerating the development of the entire crypto industry.
However, with the SEC likely to reject spot bitcoin ETF applications this month, traders are encouraged to take precautions. Hedging long exposure is a wise strategy in the face of potential market upheaval. Matrixport recommends buying $40,000 strike puts or shorting bitcoin through options to mitigate risk and navigate the uncertain landscape.
As the deadline for spot bitcoin ETF approval approaches, the crypto community remains on edge. Traders, investors, and enthusiasts eagerly await the SEC’s decision, which will undoubtedly shape the future of bitcoin. It is crucial to stay vigilant and prepared for all possible outcomes in this ever-evolving crypto landscape.
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