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July 18, 2024
PI Global Investments

Why a Bitcoin spot ETF rejection will favor shorts

  • The firm noted the ETF would not happen this month.
  • Traders’ sentiment is moving from bullish to bearish.

After predicting that Bitcoin [BTC] would hit $50,000 by the end of January 2024, crypto services firm Matrixport has released a report explaining why it no longer shares the same view.

According to Matrixport, the reason it changed its stance is that the U.S. SEC may approve any Bitcoin spot ETF this month.

In its statement released on the 2nd of January, the institution noted that:

“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.”

Will the development change the stance?

Since the year began, crypto traders have shown optimism about an impending ETF approval. For many of them, the event (if positive), would send the Bitcoin price soaring.

However, previous articles from AMBCrypto showed that people familiar with the matter were at a crossroads regarding the SEC’s decision.

On New Year’s Day, BTC hit $45,000. The increase hinted at a positive move toward Matrixport’s earlier prediction. However, the firm noted that most of the $14 billion deployed to long positions since September 2023 risked liquidations.

Matrixport added that if the SEC does not approve any application by the 5th of January, then all applications would be denied. It also noted that the first approval might occur in Q2 2024. The report mentioned:

“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.”

Shorts are prepared to thrive

As a result of this projection, AMBCrypto decided to check out Bitcoin’s Long/Short Ratio. From the data assessed via Coinglass, it seems that traders were already giving up hope on a positive ETF decision.

As of this writing, the Long/Short Ratio had decreased to 0.97%.

Bitcoin Long/Short Ratio

Source: Coinglass

If the metric is above 1, it implies that there are more open long positions than shorts. But since the Long/Short Ratio was less than 1, it means that most traders are bearish on the BTC price action.

We also looked at the Liquidation Levels using Hyblock Capital. Liquidation Levels are estimates of potential price levels where liquidation events may occur. According to the chart shown below, shorts who are late to open positions might be liquidated.

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This is because the CLLD spiked in the negative direction. If the ETF is denied, already open shorts may gain as a sharp decline might occur. However, major dips could get filled quickly while sending Bitcoin to recovery.

Bitcoin liquidation levels

Source: Hyblock Capital

Meanwhile, Matrixport noted that regardless of the January decision, BTC would end the year higher:

“Even if the SEC would deny the ETF, we still expect Bitcoin prices to be higher by the end of 2024 than when they started the year ($42,000), as US election years and Bitcoin mining years tend to be positive”

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