SEC Approves, Then Abruptly Halts, Bitwise's Crypto ETF Conversion

In a surprising turn of events, the U.S. Securities and Exchange Commission (SEC) initially approved Bitwise's application to convert its Bitwise 10 Crypto Index Fund (BITW) into a spot Exchange-Traded Fund (ETF) on Tuesday, only to immediately pause the decision. This abrupt reversal has cast further uncertainty over the regulatory landscape for multi-asset crypto ETFs in the United States.

SEC's Unprecedented Reversal

The SEC's Division of Trading and Markets greenlit the conversion of the Bitwise 10 Crypto Index Fund (BITW) into a spot ETF. However, shortly after this approval, the SEC's Office of the Secretary announced that the full Commission would review the action under Rule 431, triggering an automatic stay. This rule allows the Commission to unilaterally review any decision made by staff under delegated authority, suspending the approval until a final determination is made.

A Familiar Pattern

This isn't the first time the SEC has employed this tactic. Earlier this month, Grayscale's Digital Large Cap Fund (GDLC), which also holds a diversified portfolio of cryptocurrencies including Bitcoin, Ethereum, XRP, Solana, and Cardano, faced an identical scenario. It received staff approval for conversion into a spot ETF, only to be paused days later under the same Rule 431. Grayscale subsequently warned of potential legal action due to the delay.

Implications for Multi-Asset Crypto ETFs

The repeated pauses raise significant questions about the SEC's approach to multi-asset crypto ETFs. Industry insiders suggest the hesitation stems from the agency's struggle to establish consistent regulatory standards, particularly for tokens like XRP and ADA, which do not yet have standalone ETF approvals. The Bitwise 10 Crypto Index Fund, launched in 2017, holds approximately 90% of its assets in Bitcoin and Ethereum, with the remainder spread across Solana, XRP, Cardano, Avalanche, Chainlink, Bitcoin Cash, Uniswap, and Polkadot. Had the conversion proceeded, it would have been the first multi-token spot crypto ETF in the U.S. market.

• The SEC's actions highlight ongoing regulatory ambiguity.

• The agency appears to be grappling with establishing consistent standards for diverse crypto assets.

• The lack of clear regulatory classification for certain tokens, like XRP and ADA, complicates ETF approvals.

Broader Regulatory Landscape

Despite these pauses, the SEC remains active in the crypto ETF space. The regulator recently published filings from major firms like Franklin Templeton, Fidelity, and Invesco Galaxy, seeking to amend redemption mechanisms for their existing Bitcoin and/or Ethereum ETFs. Additionally, the SEC has initiated reviews for other ETF applications, including the Canary Capital SUI ETF and an extended deadline for 21Shares' SUI ETF application. Separately, 21Shares also proposed an ETF tracking ONDO, a token powering a real-world asset platform.

This latest development underscores the ongoing tension between crypto innovation and the evolving U.S. regulatory framework, leaving many in the industry awaiting clearer guidance from the SEC.

Sources

• SEC Approves Then Pauses Bitwise's Bid to Convert BITW Crypto Index Fund to ETF, CoinDesk.

• ‘Bizarre Situation’: SEC Halts Conversion for Another ETF Holding Bitcoin, Ethereum, and XRP, Decrypt.

• SEC Approves, Immediately Pauses Bitwise's Bid to Convert BITW Crypto Index Fund to ETF, Yahoo Finance.

• SEC Halts Bitwise Crypto Index ETF Move Amid Regulatory Uncertainty, www.tokenpost.com.

• The US SEC approved Bitwise's crypto index fund changes, but then decided to stop for a moment., Cryptopolitan.
  
  

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