Regulators and Investors Race to Redefine Crypto’s Future

Defiance has submitted applications to the U.S. Securities and Exchange Commission (SEC) for the launch of Bitcoin and Ethereum exchange-traded funds (ETFs) designed to facilitate long and short positions on the two leading cryptocurrencies. These products aim to capture hedge fund arbitrage strategies by offering synthetic exposure through derivatives. The ETFs are part of a broader trend of asset managers seeking to expand crypto-based investment vehicles, with regulatory developments playing a pivotal role in market dynamics.

The proposed ETFs will allow investors to take tactical positions in Bitcoin and Ethereum without direct exposure to the spot markets. Instead, they will rely on derivatives-based structures, providing a novel approach to trading cryptocurrency price movements. Financial experts, including Bloomberg’s Eric Balchunas, have noted that such products are likely to attract volatility traders, especially in a market environment marked by increased derivatives activity. The absence of direct on-chain effects means the impact will likely be felt more in the derivatives market, with potential for increased volumes and market participation.

Defiance is not the only firm pursuing this strategy. The SEC is currently reviewing over 90 crypto ETF applications, including products tied to altcoins like Solana, XRP, and Dogecoin. In July 2025, the agency introduced new disclosure guidance, aiming to streamline the approval process for spot ETFs and reduce timelines for issuers. This regulatory shift has been widely welcomed by asset managers, who view it as a step toward broader market acceptance and faster product development. The SEC is also considering generic listing standards proposed by major exchanges like Nasdaq and NYSE Arca, which could further accelerate the approval process for altcoin ETFs.

Bitcoin and Ethereum ETFs have already demonstrated significant traction in the market, with combined inflows reaching $152.4 billion as of mid-2025. BlackRock’s IBIT, the largest of these ETFs, has grown to over $80 billion in assets under management, marking the fastest growth of any ETF in financial history. This surge in institutional demand has translated into price appreciation for Bitcoin, which has risen from approximately $45,000 in early 2024 to over $123,000 by mid-2025. The correlation between ETF inflows and price movements has been particularly strong, with large inflows often preceding significant price surges.

The introduction of spot ETFs has also reshaped Bitcoin’s role in institutional portfolios. Studies show that its correlation with traditional assets like the S&P 500 has increased, reflecting a shift toward integration with mainstream finance. This trend is not limited to Bitcoin; Ethereum and altcoins are also gaining traction, with Ethereum ETFs attracting $7 billion in inflows. The growing acceptance of crypto ETFs is further supported by legislative developments, such as the passage of the GENIUS Act in July 2025, which clarifies digital asset custody and tax treatment.

The regulatory landscape for crypto ETFs remains dynamic, with the SEC navigating a balance between innovation and investor protection. While delays in approvals have occurred, the overall trajectory suggests a more accommodating approach. This is evident in the agency’s approval of in-kind redemptions for crypto ETFs, a move that aligns these products more closely with traditional commodity ETFs and enhances efficiency. The potential for Ethereum ETFs to launch on major exchanges like Cboe and Nasdaq further underscores the market’s readiness for broader adoption.