Oh, SEC, you may have won the bitcoin battle, but it seems you may not win the war.

On March 10, the Securities and Exchange Commission dealt a blow to those who were betting on the approval of Winklevoss Bitcoin Trust, a bitcoin exchange-traded fund (ETF) proposed by brothers Cameron and Tyler Winklevoss.

In the weeks prior to the SEC’s decision, the price of the cyber-currency had climbed as high as $1,300 in anticipation of the commission approving the Winklevoss brothers’ fund.

Immediately after the SEC slapped down the proposed ETF, the price dropped from $1,287.60 to $1,056, sending Chicken Littles everywhere screaming that the cyber-sky is falling.

But the panic barely got started before it was rudely interrupted. There was no feeding (selling) frenzy. Instead, the price reached $1,181 on March 11 and was at $1,209 the following day.

The reason: Bitcoiners know that the SEC is swimming upstream, and the tide is very much against it. The ETF may be wounded, but it is far from dead.

Did You Say ‘Bitcoin?’

Why the hype? Bitcoin has moved from a video-game-like currency embraced by millennials and those who live in online worlds to a phenomenon that, if not mainstream, is pretty darn close.

Bitcoin is confidential, transacts instantly, is inflation-proof and is not tied to a government (so they also can’t take it away), and there are no fees to use it. The demand for bitcoin also increased as the marijuana industry became legal at the state level but not the federal level, and the need for non-federal currency emerged.

All this created incredible buzz around the cyber-currency and heightened the interest in a bitcoin exchange-traded fund (ETF).

Enter the Winklevoss brothers, the 30-something twin who sued Mark Zuckerberg over the ownership of Facebook. Always on the cusp of the next big thing, the Winklevoss brothers see enormous potential in the bitcoin realm.

The Winklevoss brothers aren’t the only ones maneuvering to make a bitcoin basket. Two other names, Grayscale and SolidX Partners Inc., are also applying to list bitcoin ETFs.

Back to the Drawing Board

In turning down the Winklevoss twins, the SEC noted that:

“It does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.”

The SEC further commented that:

“In order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (ETPs) must . . . satisfy two requirements. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.

Based on the record before it, the Commission believes that the significant markets for bitcoin are unregulated. Therefore, as the Exchange has not entered into, and would currently be unable to enter into, the type of surveillance-sharing agreement that has been in place with respect to all previously approved commodity-trust ETPs agreements.”

There were also more pedestrian reasons for the SEC to reject the Winklevoss application, primarily in the conflict-of-interest realm. The brothers were proposing to keep multiple parts of the ETF in-house, which likely made the SEC nervous. They wanted to be the sponsor and provide the reference price for bitcoin. And they are among the largest owners of the currency.

It’s Not Over

The reason the cyber-currency bounced back even after the SEC’s decision is that neither the Winklevoss brothers nor other bitcoiners packed up their cyber-wallets and went home after the decision.

The brothers stated that they will continue to fight for an ETF, and other supporters vowed to step up efforts to meet the requirements set out by the SEC. This resilience is keeping the market from tanking. Additionally, the SEC rejection has drawn even more attention to the cyber-currency and increased interest in it.

There are two more dates for bitcoin and the SEC looming, and they could make a dramatic difference in the landscape.

The SolidX Bitcoin Trust is the next application to face the SEC, with a 30 March deadline. The Grayscale Bitcoin Trust already trades over the counter (OTC: GBTC) and will receive its ruling by September 22, 2017.

One major reason both Grayscale and SolidX may receive a more favorable ruling is that they fall a little more clearly in that regulatory-land the SEC likes. Specifically, both Grayscale and SolidX propose pegging the price of bitcoin to the TradeBlock bitcoin index. The Winklevosses wanted to use Gemini, a cyber-currency exchange that launched in 2015 and is responsible for less than 1% of the bitcoin market. TradeBlock is larger and more reliable and may give the SEC the sense of comfort it is looking for.

At the same time, bitcoin rumor has it that the Winklevoss brothers are stepping up the pressure to create a self-regulating organization that will help with its next iteration of an application. Stay tuned to see whether that pans out.

Even without an ETF, you can still invest in bitcoin, but it’s a fairly complicated process involving opening bitcoin wallets, dealing with online exchanges, or paying huge premiums to invest in the Bitcoin Investment Trust.

And this is why a bitcoin ETF matters. It will increase liquidity in the currency by a huge multiplier, creating a mega-bounty for the bitcoin market.

An ETF is also important for legitimacy. If the SEC approves one of the other ETFs, it will be a signal that the currency is, in fact, legitimate and that maybe sovereign governments are not quite so nervous about a currency that operates outside its control.

Why Bitcoin ETFs Are Dawning

Simply put, the time is ripe for a bitcoin ETF. The environment is right, the market has expanded, and there is certainly demand. There is an increasingly jaundiced view of governments around the world, and bitcoin offers a currency alternative to one subject to central bank manipulation.

Bitcoin has also matured, moving from the anarchist’s currency to an alternative currency, willing to at least talk about working within a regulatory framework and self-regulation.

Most importantly, users want it. They want the alternative, and the ETF gives that alternative in an accessible package.

Should You Invest in Bitcoin?

Bitcoin is still essentially new. It has huge volatility and is little-understood by big pockets of the world. It is also largely untested, and many regulators worry that we won’t even be able to assess the problems with bitcoin until it is rolled out on a larger scale. It is also still outside most of the financial system, and it is not even clear whether, how, or when it will be fully integrated.

There is also a very real possibility that enthusiasm for a bitcoin ETF will outperform the actual currency, or that the currency will boom based on ETF-frenzy, only to bubble and burst when reality sets in.

The biggest problem for bitcoin may be the sovereign governments of the world and their desire to protect their fiat currencies. If world leaders gang up and decide to make it harder for bitcoin to operate, the currency — and an ETF — will tank.

The Winklevosses have acknowledged this. Their application to the SEC noted that one major risk is that the investment itself could become illegal. That’s not something you read in a prospectus every day.

There are some countries where bitcoin is already banned, including Russia, Vietnam, and India, or restricted, like in China. The problem is that exactly because bitcoin is outside the control of the government, a government ban is not only ineffective but can also be counter-productive.

China, which prohibits banks or banking institutions from using bitcoin, is now the largest bitcoin market. Outlawing bitcoin draws attention to the cyber-currency and would likely increase, rather than decrease, the market. It also is almost impossible for a government to enforce.

Prohibition and alcohol ring any bells?

But so long as the cyber-currency doesn’t become outlawed, a bitcoin ETF is a foregone conclusion — despite the SEC’s decision to reject the Winklevoss brothers’ listing. It’s simply a matter of time.

The word of caution here is on just how much time. If the SEC rejects the SolidX application, bitcoin is likely to get a little more nervous. A September rejection will almost certainly push the idea of a bitcoin ETF back until some quasi-formal regulation mechanism is in place. A third denial will also rattle even the true believers, plummeting bitcoin prices until the next sound bitcoin ETF application emerges.

But yes, Virginia, a bitcoin ETF will happen. Given the current environment and the growing demand for bitcoin, an exchange-traded fund is going to become increasingly attractive to investors with a higher risk investment. Moreover, holders of bitcoin are going to benefit, at least initially, from an ETF and the excitement it will bring. Not this month; perhaps not even this year. But it’s going to happen. Bet on it.