Why Bitcoin and Other Major Cryptocurrencies Rallied This Week

Major cryptocurrencies have soared over the past week, led by a 9% rise in the price of Bitcoin (CRYPTO:BTC). As of Friday's close, Bitcoin SV (CRYPTO:BSV) -- a bitcoin fork token -- was up 61.6%, Stacks (CRYPTO:SOL) was up 27.7%, and Solana (CRYPTO:STX) had rallied 24.3% on the week, according to data provided by S&P Global Market Intelligence.

The moves were spurred by increased optimism in recent days over impending improvals by the U.S. Securities and Exchange Commission (SEC) of new spot bitcoin exchange-traded funds (ETFs).

Optimism building for the first spot bitcoin ETF approvals

The crypto rally this week was teed up by encouraging crypto headlines starting last Friday (Oct. 13, 2023). According to sources speaking to crypto news site CoinDesk, the SEC decided it would not appeal a federal court's August reversal of its decision preventing crypto-asset manager Grayscale from converting its widely popular Grayscale Bitcoin Trust (OTC:GBTC) into an ETF. Assuming those sources are accurate, the court could finalize its decision as early as next week.

But this news is specific to bitcoin, so why is it good for cryptocurrencies in general? Because ETFs are a much more investor-friendly medium with shares that can be purchased throughout each trading day via any brokerage firm similar to individual publicly traded equity securities. Any approvals of a spot ETF that tracks the price of bitcoin would broaden investors' access to, and in turn, their acceptance of all crypto asset classes. As a result, it would almost certainly lead to hundreds of billions of dollars in additional liquidity flowing into cryptocurrencies' market capitalizations in short order. Looking further down the road, according to a report from data analytics firm CryptoQuant earlier this week, the value of the overall crypto market could grow by a total of more than $1 trillion after bitcoin ETFs are finally approved.

What's next for Bitcoin ETFs?

Sure enough, multiple ETF providers filed amended registration statements for potential bitcoin ETFs this week, including Grayscale, Blackrock, and Fidelity, apparently in response to the SEC's decision not to appeal the federal court's aforementioned ruling.

Furthermore, according to a research report released on Wednesday (Oct. 18, 2023) by JPMorgan, the timing of any approvals remains unclear but should happen within the next several weeks. At the very latest, the report adds, the first SEC approvals should arrive before Jan. 10, 2024 -- the final deadline by which the SEC is required to respond to ARK Invest's open application for its "21Shares" bitcoin ETF.

Finally, the firm also speculated that rather than approve individual ETFs over the course of several months -- and noting its deadline to respond to BlackRock's application is March 15 of next year -- the SEC will likely approve multiple applications at once in order to prevent any single bitcoin ETF from gaining a so-called "first-mover" advantage.

That's fair enough and will also mean millions of retail investors will suddenly have access to several seamless avenues to diversify their portfolios into the budding cryptocurrency asset class. To be clear, that doesn't mean the rise in all cryptocurrencies will continue indefinitely over the long term. But because liquidity tends to be one of the primary drivers of the direction of any given market, this week's gains could be extended over the near term as optimism reaches a fever pitch surrounding the SEC's first spot bitcoin approvals in the coming months.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Steve Symington has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, JPMorgan Chase, and Solana. The Motley Fool has a disclosure policy.