SEC Turbocharges Crypto ETP Approvals

The ETF universe may be expanding faster than the actual universe. 

Last week, the US Securities and Exchange Commission approved generic listing standards for several exchanges that cover spot-price commodity and digital asset exchange-traded products. That’s a pass for exchanges (Nasdaq, Cboe BZX and NYSE Arca) to list crypto ETFs without having to get a rule change every time from the SEC. And it echoes the regulator’s 2019 ETF rule, which allowed issuers to launch products without first getting exemptions. More is better … right?

“This is a big deal, as it puts crypto ETF applications on the same level playing field as other ETF applications, which follow a set of generic listing standards,” said Don Friedman, CEO of the Digital Assets Council of Financial Professionals. The group’s founder Ric Edelman praised the policy and its likely effect on making crypto more mainstream. “We can expect an array of new investment options for both advisors and investors, arriving with greater speed to market, making it easier, cheaper, safer and more profitable for everyone to allocate to crypto,” Edelman said.

Maybe Not So Fast

The generic listing rules require commodities to be traded on a market that is a member of the Intermarket Surveillance Group (the three exchanges are) or to underlie a futures contract that has been traded for at least six months on a CFTC-regulated market. Further, ETPs can also pass if there is a similar commodities ETF in existence that meets certain criteria. “The commission is passing the buck on reviewing these proposals and making the required investor protection findings, in favor of fast tracking these new and arguably unproven products to market,” said Caroline Crenshaw, the lone Democrat on the commission, in a statement opposing the order. Crenshaw also objected because the commission’s order blurs the line between ETPs, which are 1933 Act products, and ETFs, which are 1940 Act investments. 

Along with the generic listing standards order, the SEC also made several other approvals:

• The Grayscale Digital Large Cap Fund (GDLC), a ’33 Act product, was allowed to trade.
• The SEC approved certain p.m.-settled options on the Cboe Bitcoin US ETF and Mini-Cboe Bitcoin US ETF indexes.

Crypto Galore: The change seems likely to help the spot-crypto ETP realm expand beyond Bitcoin and Ethereum. Choice is a plus, said Kevin Feig, founder of Walk You To Wealth, who previously worked as head of risk at crypto exchanges Coinbase and Kraken. “Ultimately, we will move toward directly holding digital assets alongside traditional investments, without the need for an ETF,” he said. “Bottom line is that more options and lower costs for investors is something that should be celebrated.”