A Balancing Act for Adoption?

It's been an interesting couple of days for a number of exchanges which were hoping to get the green light to launch various Bitcoin exchange-traded funds.

The regulatory body raised concerns about the size of the Bitcoin ETF market.

"[The agency] emphasizes that its disapproval does not rest on an evaluation of whether Bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment.

The ETFs in question differ somewhat from other offerings that have also been denied by the SEC. These nine ETFs are 'derivative-backed,' meaning the exchanges own futures contracts and not actual Bitcoin.

As Pompliano suggests, there seems to be an infatuation with Bitcoin ETFs and the possibility of their issuance bringing better market sentiment for the cryptocurrency.

"In fact, an argument could be made that an ETF would simply give more people the opportunity to short Bitcoin, which would drive the price lower. Although this would be highly unlikely, we did see a significant increase in downward price pressures in the market with the introduction of Bitcoin futures roughly nine months ago. We're living in an unpredictable market, so anything is possible."

Crypto analyst Brian Kelly reacted to the news positively in a segment on the CNBC Fast Money show, suggesting that the latest move points to an eventual approval of Bitcoin ETFs in February 2019.

The SEC will deliver a ruling on Direxion's proposed ETF on Sept. 21, while the deadline for another Bitcoin ETF proposed by financial services company SolidX and investment firm VanEck has been pushed back to Sept. 30.

"An ETP based on Bitcoin would offer investors indirect exposure to Bitcoin through a product that trades on a regulated securities market and in a manner that eliminates some of the frictions and worries of buying and holding Bitcoin directly. If we were to approve the ETP at issue here, investors could choose whether to buy it or avoid it."

The SEC's announcement that it would review its initial finding had a notable effect on the cryptocurrency markets, with Bitcoin rebounding after an slight pull-back following the original rejection on August 22.