Sharp Correction Rocks Crypto Markets with $670 Million in Liquidations
Bitcoin (BTC) and altcoins are currently experiencing a significant correction after a strong start to the year. Within a span of just a few hours, over $670 million worth of liquidations have been recorded, primarily affecting traders who had positioned themselves long in the market.
The correction saw Bitcoin drop by more than 8%, falling from $45,469 to $41,805. Ethereum and other altcoins experienced even sharper declines.
Predictions of Bitcoin ETF Rejection Contribute to Market Correction
While the exact cause of the market correction is unknown, it coincides with the release of a report from Matrixport, a crypto financial services firm. The report predicts that the U.S. Securities and Exchange Commission (SEC) will reject applications for spot Bitcoin exchange-traded funds (ETFs). This prediction goes against the expectations of most market participants.
According to Matrixport, there is no logical reason to believe that SEC Chair Gary Gensler, who has advocated for stricter crypto regulations, would vote in favor of an ETF. The firm also highlights significant leverage buildups in the market and suggests that bulls should consider purchasing put options at the $40,000 strike price to hedge their long positions in case of a collapse below support.
Possible Impact of ETF Rejection on Crypto Market
If the SEC denies Bitcoin ETF approvals, Matrixport expects cascading liquidations as traders unwind their $5.1 billion worth of additional perpetual long Bitcoin futures. This could lead to a rapid decline in Bitcoin prices by up to 20%, potentially falling back to the $36,000/$38,000 range.
The report advises traders to hedge their long exposure by buying put options at the $40,000 strike price for the end of January or consider going outright short Bitcoin through options if no approvals are announced by Friday, January 5, 2024.
Hot Take: Crypto Markets Face Uncertainty Amid ETF Rejection Predictions
The recent sharp correction in the crypto markets, accompanied by significant liquidations, has raised concerns among traders and investors. The predictions of a potential rejection of Bitcoin ETF applications by the SEC have added to the uncertainty.
If these predictions come true, it could trigger a cascade of sell-offs and further downward pressure on prices. Traders are urged to exercise caution and consider hedging their positions to protect against potential losses.
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