Understanding the Crypto Crash Fueled by Bitcoin ETFs

Estimated read time 3 min read
  • The crypto market plunged on January 3, shedding $600 million in liquidations due to Matrixport’s research indicating a potential delay in SEC approval for Bitcoin spot ETFs.
  • This triggered an 8.51% drop in Bitcoin’s price, sparking concerns about further crashes if Matrixport’s forecast of a rejection until Q2 2024 holds true.

The cryptocurrency world experienced a tumultuous start to 2024 as the market plunged into a sea of uncertainty on January 3, causing a staggering $600 million in liquidations. This abrupt downturn was predominantly fueled by Matrixport’s research, sending shockwaves through the digital asset landscape.

The Matrixport Influence

Matrixport, a prominent digital asset company, took center stage with its pivotal research. The company’s blog, authored by Markus Thielen, the Head of Research, sent ripples across the market by suggesting a potential delay in the approval of Bitcoin spot ETFs by the US Securities and Exchange Commission (SEC). The post highlighted a crucial requirement missing in the filed ETFs, pointing towards a potential approval postponement until the second quarter of 2024.

The Fallout

The crypto market, already on edge, witnessed a rapid descent with a cascade of liquidations, wiping nearly $1 billion in open interest within hours. The sell-off pressure triggered massive liquidations, totaling $520 million in long positions and nearly $30 million in short positions. Matrixport’s research served as the catalyst, creating a domino effect that led to an 8.51% drop in Bitcoin’s price, plummeting from $45,308 to $41,454.

Understanding the Landscape

The Matrixport research emphasized the political landscape at the SEC, noting the dominance of Democrats among the current five-person voting Commissioners. SEC Chair Gensler’s cautious approach towards crypto added to the uncertainty, raising doubts about a positive vote for Bitcoin Spot ETFs. The research suggested a potential wipeout of $5.1 billion in longs, with the theoretical consequence of a 20% drop in Bitcoin’s price to a range of $36,000 to $38,000.

What to Expect Next

As the dust settles, the crypto market now faces a critical juncture. The estimated leverage ratio, a key indicator of risk, witnessed a substantial decline, suggesting a reduction in risk and a possible bottom formation. However, the ominous question lingers: Will the crypto market crash further?

The 365-day Market Value to Realized Value (MVRV) ratio, currently at 33.15%, hints at a significant portion of investors being in profits. Matrixport’s forecast of a potential SEC rejection of Bitcoin spot ETFs looms large, with the 365-day MVRV ratio indicating that the recent crash might just be the beginning. If investors decide to capitalize on profits, the market could witness another downturn.

Navigating the Uncertainty

As Matrixport’s grim forecast hangs in the balance, the crypto community braces for potential challenges. The looming rejection of ETFs until Q2 2024 could unleash a chain reaction, potentially causing Bitcoin to revisit the $30,000 psychological level or even bottom out at around $24,800, mirroring the equal lows from previous market cycles. The next few weeks promise to be a rollercoaster ride as market participants eagerly await regulatory decisions and navigate the unpredictable terrain of the cryptocurrency landscape.

vivian

Vivian Njoroge is a seasoned crypto and blockchain news writer with a passion for decoding the complexities of the digital financial world. Armed with a keen eye for emerging trends and a knack for simplifying intricate concepts, Vivian brings a unique blend of expertise and enthusiasm to her writing. Her articles, characterized by clarity and depth, aim to keep readers abreast of the ever-evolving landscape of cryptocurrencies and blockchain technology.

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