Why Prediction-Market ETFs Got Stuck in an SEC ‘Rain Delay’

Thankfully, we didn’t take out that event contract on the launch of the first prediction-market ETFs this week.

Prediction markets have surged in popularity, thanks to event contract trading platforms such as Kalshi and Polymarket that allow “yes” or “no” bets on everything from when traffic at the Strait of Hormuz will return to normal to who will win American Idol. While there’s also been a surge of ETFs that offer exposure to potentially complex corners of the financial markets in the easy-to-trade wrapper, prediction-market ETFs would come with their own unique set of risks, including the fact that they could essentially go to zero should an event not happen. 

As we previously reported, exchange-traded funds from GraniteShares, Roundhill and Bitwise filed in February with the Securities and Exchange Commission were expected to come to fruition this week. (The SEC’s rule stipulates that ETFs automatically become effective 75 days after filing unless the agency intervenes.) No dice. Wall Street’s watchdog is reportedly delaying the launches and seeking more information about the funds’ mechanics and disclosures.

“This sounds like a rain delay,” said Bloomberg analyst Eric Balchunas. “It doesn’t sound like some permanent problem.” 

Green Light: Yes or No? 

The SEC has moved away from the regulation-by-enforcement approach implemented with Gary Gensler at the helm. Under current Chair Paul Atkins and the Trump administration, the agency has adopted a more relaxed handling of product approvals. Last year, for instance, it began allowing in-kind creations and redemptions for spot crypto ETFs, meaning the funds were no longer limited to just cash transactions. When it comes to the prediction-market ETFs, Balchunas said it’s likely the SEC is making sure T’s are crossed and I’s are dotted regarding disclosures, since this is a very disclosure-oriented SEC: 

• He said the agency is probably asking the issuers to further explain the disclosures and how mechanics around exposure and a yes-no market will work. 
• When ETFs are simply following in the footsteps of others in a category, you’d be less likely to see a delay like this. But “these are groundbreaking products,” Balchunas said. 

The SEC and Bitwise declined to comment, while Roundhill and GraniteShares did not respond to requests for comment. 

Déjà Vu: The delays may have some issuers feeling like it’s pre-2024, when firms were lining up to launch spot bitcoin ETFs. But while the journey to an approved spot crypto ETF took roughly a decade, Balchunas expects a much shorter process this time around. “The SEC just really wants to make sure they’re comfortable because once you’re in an ETF wrapper, you’re ready for middle America,” he said.