Why the SEC Keeps Putting Off Diversified Crypto ETFs

Another diversified crypto ETF has been moved to the back burner.

Bitwise’s application seeking the SEC’s signoff to convert its crypto index fund to an ETF, which would offer investors exposure to a broader portfolio of digital assets including XRP and Polkadot, was delayed on Tuesday after being approved by the regulatory body’s trading and markets division earlier that day. Other similar filings from Grayscale and 21Shares to launch diversified crypto ETFs have also been put on hold, the latest signs of hesitation from an agency operating in what is arguably the most crypto-friendly political environment to date.

While the demurring showed the degree of scrutiny regulators are applying to new crypto products, it nonetheless raised some eyebrows. “It honestly is really confusing. I don’t think there’s a clear reason why they’ve approved and then placed [Bitwise’s application] on hold,” said Roxanna Islam, head of sector and industry research at VettaFi. “It’s not really a common occurrence to do that.”

Holding Pattern

The issue is less about the structure of the funds themselves than about internal regulatory disarray at the SEC, Islam said. “There’s still not a clear regulatory framework, especially for these newer types of products,” she added. “They are trying to get some things sorted out internally before these are officially launched.” If the SEC approves both products simultaneously, it could blunt Grayscale’s first-mover advantage. The two managers’ crypto index ETF filings are:

• Bitwise’s 10 Crypto Index Fund (BITW), which would hold 90% of its assets in Bitcoin and Ether, with the rest spread across other digital assets like Solana, XRP and Polkadot and rebalanced monthly.
• Grayscale’s Digital Large Cap Fund (GDLC), which would place 80% of its assets into Bitcoin, with the rest devoted to Ether, XRP, Solana and Cardano.

There are some ETFs on the market that hold Bitcoin and Ether — the Franklin Crypto Index ETF (EZPZ) and the Hashdex Nasdaq Crypto Index US ETF (NCIQ), for example — but nothing so far that holds anything else. Once pending proposals are approved, however, these issuers could launch their own multi-token indexes or add to current offerings.

It’s Not You, It’s the SEC. Procedural rules may also be slowing things down, Islam said. “Right now, the filing process is a little bit complex” since the agency recently updated its guidance on disclosures. “Maybe in the future, that would be simplified.”