Bitcoin News Today: SEC Halts Bitwise Crypto ETF Approval Under Rule 431 Sparking Regulatory Uncertainty

The U.S. Securities and Exchange Commission (SEC) has plunged Bitwise’s proposed conversion of its crypto index fund into a spot ETF into regulatory uncertainty, approving the move before abruptly halting it under Rule 431 of the Securities Act. The Bitwise 10 Crypto Index Fund (BITW), which holds over 90% of its assets in cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and XRP, initially received accelerated approval from the SEC’s Division of Trading and Markets on July 19, 2025. However, the full Commission suspended the decision hours later, leaving the project in legal limbo [1][2]. This reversal mirrors the agency’s earlier action against Grayscale’s Digital Large Cap Fund (GDLC), raising concerns about inconsistent regulatory standards for crypto ETFs [3].

The SEC’s use of Rule 431—a provision allowing unilaterally imposed review of staff-level decisions—has drawn criticism for lacking transparency. James Seyffart of Bloomberg ETFs noted that the pause was likely initiated by one or more commissioners, freezing Bitwise’s application until the Commission completes a full review [3]. Analysts speculate the delays could reflect internal political tensions or a strategic effort to establish uniform criteria for crypto ETFs before broader approvals. The timing, occurring days before a potential final decision on BITW, has also fueled theories that the SEC aims to extend its authority beyond the 240-day statutory period for ETF approvals, potentially avoiding legal challenges from dissident commissioners [4].

The BITW’s proposed ETF would track a market-cap-weighted index of the ten largest cryptocurrencies, excluding stablecoins, offering diversified exposure to digital assets via a traditional investment vehicle. Critics argue the SEC’s reluctance to normalize crypto ETFs, despite staff-level approvals, stems from concerns about market manipulation and insufficient surveillance-sharing agreements. This stance contrasts with the agency’s stated goals of fostering innovation while protecting investors, highlighting a tension between regulatory caution and market demand [6]. Nate Geraci of the ETF Institute called the process “bizarre,” emphasizing the risk of arbitrary delays for firms that receive initial staff-level endorsements [5].

The regulatory uncertainty has broader implications for the ETF industry. Projects approved at the staff level now face indefinite delays, deterring institutional participation in crypto ETF development. The SEC’s failure to provide a clear timeline for resolving the BITW pause has compounded uncertainty, with Grayscale recently warning that prolonged inaction harms investors. The lack of standardized guidelines for crypto ETFs weakens the SEC’s ability to enforce consistent oversight, increasing the risk of regulatory arbitrage. If the SEC aims to establish a robust crypto market, it must balance investor protection with a transparent approval process that aligns with the evolving financial landscape [1][2].

The abrupt pauses underscore the SEC’s struggle to navigate the complexities of crypto regulation. While the agency’s cautious approach aims to mitigate risks, it also hinders market growth and investor confidence. The BITW case exemplifies how regulatory ambiguity can stifle innovation, with market participants awaiting clarity on the SEC’s future direction.

Sources:

[1] [Cointelegraph](https://cointelegraph.com/news/sec-pauses-bitwise-crypto-etf-after-approval)

[2] [CoinDesk](https://www.coindesk.com/policy/2025/07/22/sec-approves-then-pauses-bitwise-s-bid-to-convert-bitw-crypto-index-fund-to-etf)

[3] [The Block](https://www.theblock.co/post/363901/us-sec-approved-conversion-of-the-bitwise-crypto-index-fund-then-hit-pause)

[4] [Decrypt](https://decrypt.co/331357/sec-halts-another-etf-holding-bitcoin-ethereum-xrp)

[5] [Yahoo Finance](https://finance.yahoo.com/news/sec-approves-immediately-pauses-bitwises-215055666.html)

[6] [Coinpaper](https://coinpaper.com/10104/sec-approves-then-stays-bitwise-crypto-etf-conversion)