Several major cryptocurrencies rallied on Thursday as the U.S. Securities and Exchange Commission (SEC) entered its first potential approval period for pending spot Bitcoin (BTC 1.62%) exchange-traded fund (ETF) applications.

As of 1:00 p.m. ET, the price of Ethereum (ETH 0.75%) was up an impressive 6.9%, while the price of Bitcoin had rallied more than 3% after briefly crossing $37,000 to hit a fresh 18-month high. The rising tide curiously didn't lift all boats, however; the typically volatile Dogecoin (DOGE 0.88%) was simultaneously down around 5% this afternoon -- albeit after rallying around 13% this week leading up to today's session.

The latest in a multiweek crypto rally

Today's moves follow an extended rally in major cryptocurrency prices that began around three weeks ago when the SEC had reportedly declined to appeal a federal court's August reversal of an order that had prevented crypto-asset manager Grayscale Investments from converting its widely popular Grayscale Bitcoin Trust (GBTC 1.71%) into an ETF. The development prompted several hopeful ETF providers -- including Grayscale, Blackrock, and Fidelity -- to file amended registration statements for their own respective spot Bitcoin ETFs.

After the D.C. Circuit of Appeals formalized Grayscale's court win over the SEC the following week, the onus was moved back to the SEC to move forward with its approval processes.

So what, exactly, has rejuvenated the market's excitement for crypto today? According to a new research note published late yesterday by Bloomberg ETF analysts Eric Balchunas and James Seyffart, Thursday marked the first day of an eight-day period when the SEC could "theoretically approve" pending spot Bitcoin ETF applications.

In addition, according to a separate report this morning from CoinDesk -- which is owned by Grayscale's parent company, Digital Currency Group -- the SEC's Divisions of Corporate Finance and of Trading & Markets have each opened talks with Grayscale regarding the details of its spot bitcoin ETF conversion application. An SEC spokesperson declined to comment on the news.

Don't hold your breath for the first Bitcoin ETF approvals just yet

To be clear, it seems highly unlikely that the SEC would rush any approval decisions this week. Recall the first relevant deadline the SEC is technically required to respond to in this case is Jan. 10, 2024 -- specifically, the date by which it must approve or deny ARK Invest's "21Shares" Bitcoin ETF application.

But ARK Invest's application likely won't be approved in isolation. Rather, the SEC will almost certainly approve multiple spot bitcoin ETFs simultaneously to prevent any single bitcoin ETF from gaining a so-called first-mover advantage. Regardless, commenting on their research note via X yesterday, Balchunas and Seyffart reiterated their view that "there's a 90% chance of approval by January 10."

Why the first Bitcoin ETFs will be huge for the crypto market

Why does the market care so much about Bitcoin ETFs in the first place? Many brokerages still don't allow investors to buy cryptocurrencies directly. Exchange-traded funds are a significantly more accessible investment vehicle that would more seamlessly enable people to put their money to work in the budding crypto sector, with shares that can be purchased and sold throughout each trading day, similar to any publicly traded stock. As such, according to data analytics firm CryptoQuant, the long-awaited approval of Bitcoin ETFs could potentially increase the value of the overall crypto market by more than $1 trillion.

Of course, it remains to be seen whether this becomes a "sell the news" event in the medium term after those first approvals finally arrive. But viewed through the lens of hundreds of billions of dollars in liquidity flowing into a given market in short order, it becomes much easier to understand why the prices of major cryptocurrencies have rallied so hard in recent weeks.