In a surprise turn of events, it seems that the U.S. Securities and Exchange Commission (SEC) is taking a second look at a Bitcoin exchange-traded fund (ETF) application, which was denied just last month.

Although welcomed by many cryptocurrency bulls, it remains to be seen why the leading financial regulator is taking such a step to accommodate this fledgling industry.

SEC May Backtrack on Bitwise Denial

As reported by Blockonomi last month, the SEC issued a verdict on Bitwise Asset Management’s Bitcoin ETF application after months of waiting and delays. Unfortunately, it wasn’t all too pretty for the cryptocurrency financial services provider. Announced through an extensive 112-page order published on October 9th, the SEC “disapproved” the ETF application.

Though, in a Federal Register document dated November 12th though published on November 18th, the SEC claimed that its five commissioners will (re)review the Bitcoin ETF application.

The review does not mean that acceptance of the Bitcoin ETF application is imminent, though the public can comment on the rejection until December 18th.

Speaking to CoinDesk in an email, Matt Hougan, the company’s global head of research who was understandably optimistic about the chances of the company’s ETF, said that Bitwise did not request the SEC to review the denial.

This seeming backtrack comes after analysts indicated that the SEC’s verdict on the aforementioned proposal was flawed. Arca’s Philip Liu, a securities lawyer, for instance, wrote on Twitter that the SEC was “unconvinced on all fronts” in regards to the state of the underlying Bitcoin market.

While Jake Chervinsky, legal counsel for Ethereum DeFi application Compound, said that the 112-page order denying Bitwise’s ambitions “reads like a damning indictment of Bitcoin’s market structure.”

Bitcoin Bull Skeptical of ETFs’ Chances

While the SEC is having doubts about its previous ruling, a top Bitcoin bull believes that this market isn’t ready to have its own ETF. Fundstrat Global Advisors co-founder, “permabull” Thomas Lee recently took the stage of Blockshow in Singapore to talk cryptocurrency.

While he continued to wax poetic about the future of cryptocurrency, he took some time to address Bitcoin ETFs.

Speaking to a crowd, Lee opined that for an ETF to be approved by the SEC, the underlying Bitcoin market will need to be much bigger, at least 16 times larger than the current size. “He estimates Bitcoin needs to be around $150,000 to cope with daily demand on an ETF,” Bloomberg wrote on the matter.

To put this in layman’s terms, the Fundstrat executive thinks that the underlying spot market for Bitcoin does not have enough liquidity to satisfy the SEC.

In a sense, then, the launch of a Bitcoin ETF in Lee’s eyes is much like a chicken and the egg scenario: the launch of an ETF would likely expedite a rally over $100,000, which would boost liquidity, though this market is not currently large or liquid enough for such a fund.

Regardless, Lee isn’t alone in thinking that the crypto market is not yet liquid enough to support a fully-fledged fund, one that is tradable by institutions and retail investors alike on the open market.

Todd Rosenbluth, Director of Mutual & Exchange Traded Fund Research of markets research firm CFRA, argued on CNBC that a cryptocurrency ETF remains but a quixotic dream: