What happened
Cryptocurrencies have rallied sharply this week, but that rally cooled off over the last 24 hours. Tuesday's jump was driven by Grayscale's win over the U.S. Security and Exchange Commission (SEC) in court, which could pave the way for more crypto ETFs, but the rally hasn't lasted.
Between noon ET on Tuesday and 3:15 p.m. ET on Wednesday, the value of Bitcoin (BTC -2.21%) fell 2.7%, Ethereum (ETH -0.15%) was down 1.9%, and Dogecoin (DOGE -3.89%) dropped 2.1%. But the cryptocurrencies are up 2.9%, 1.4%, and 2.2% over the past week, so there has been a rally overall.
Image source: Getty Images.
So what
The court's ruling yesterday that the SEC must review the Grayscale Bitcoin Trust application to convert into an ETF could pave the way for more Bitcoin ETFs. And that could open up more crypto ETFs for Ethereum or even Dogecoin.
What the judge's ruling doesn't guarantee is that any ETFs will actually be approved. The SEC just needs to review the application and treat it like any other Bitcoin ETF application, which hasn't yet been approved. So, it's back to a waiting game for investors.
What we have seen is repeated wins for the crypto industry in court. The Ripple ruling in July paved the way for cryptocurrencies to be regulated more like commodities rather than securities, and now trading options may be opening up via ETFs.
It's not clear when there will be a final ruling on a Bitcoin ETF or if an answer on what's a commodity and what's a security will be coming, but this was seen as a positive sign for the industry.
Now what
The bounce in values on Tuesday is what's reversing today. There was at least some hope that this would lead to more ETFs and more certainty for the industry, but as the market has processed the ruling, it's clear that's not what happened.
That said, the court being more friendly to the crypto industry should be an incremental positive long term. Trading has all but dried up for most cryptocurrencies, and that's left the industry in an uncertain place. The regulatory uncertainty hasn't helped, but if that gets answered, there's billions of dollars of investment that's gone into companies building on the blockchain. That's where the real innovation will take place that could cause values to increase.
For now, the market seems to be cautiously optimistic when there's a positive ruling, but the bounce doesn't last long because there's no fundamental change in the market. That's what's holding values back and why we get the pop and then the slow drop of the last 36 hours. Expect that trend to continue until there's regulatory clarity, which at this rate could still be years away.
