Bitcoin News Today: SEC Pauses Bitwise ETF Conversion in Regulatory Limbo After Initial Approval

The U.S. Securities and Exchange Commission (SEC) has placed the Bitwise 10 Crypto Index Fund (BITW) in regulatory limbo after initially approving its conversion into a spot exchange-traded fund (ETF) and then suspending the decision hours later. The BITW, which holds over 90% of its assets in cryptocurrencies like Bitcoin and Ethereum, received accelerated approval from the SEC’s Division of Trading and Markets but was swiftly halted by the full Commission under Rule 431 of the Securities Act. This procedural reversal, executed without public explanation, has sparked speculation about internal divisions within the agency and raised questions about the SEC’s evolving approach to crypto assets [1][2].

The abrupt stay mirrors a similar action earlier this month against Grayscale’s Digital Large Cap Fund (GDLC), further highlighting the SEC’s inconsistent application of its regulatory framework. Analysts suggest the delays may reflect internal political tensions or a strategic effort to establish uniform standards for crypto ETFs before broader approvals. James Seyffart of Bloomberg ETF noted that the stay was likely initiated by one or more commissioners, effectively freezing Bitwise’s conversion until the Commission’s full review [3]. The timing of the pause—occurring days before the expected final decision—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 use of Rule 431 allows the SEC to unilaterally review staff-level decisions without transparency, creating a backlog for crypto ETF applicants. Nate Geraci of the ETF Institute criticized the process as “bizarre,” emphasizing the risk of arbitrary delays for firms that receive initial staff-level endorsements. The lack of clarity undermines investor confidence and complicates market entry for crypto-focused ETFs, which require predictable regulatory pathways to function effectively. Grayscale’s legal warning against the SEC, citing harm to investors from prolonged inaction, underscores the industry’s growing frustration with the agency’s opaque decision-making [5].

The BITW’s proposed ETF, which would track a market-cap-weighted index of the ten largest cryptocurrencies (excluding stablecoins), was designed to provide diversified exposure to digital assets through a traditional investment vehicle. However, the pause has reignited debates over the SEC’s stance on crypto market integrity. Critics argue that the agency’s reluctance to normalize crypto ETFs—despite staff-level approvals—stems from concerns about market manipulation and insufficient surveillance-sharing agreements. This cautious approach contrasts with the SEC’s stated goals of fostering innovation while protecting investors, revealing a tension between regulatory caution and market demand [6].

The regulatory uncertainty extends beyond Bitwise, affecting the broader ETF industry. Projects approved at the staff level now face indefinite delays, creating a fragmented and unpredictable approval process. This dynamic has discouraged institutional participation in crypto ETF development, as firms hesitate to commit resources to products that could be arbitrarily halted. The SEC’s failure to provide a clear timeline for resolving the stay further compounds the uncertainty, leaving market participants in a holding pattern [7].

The implications of this regulatory limbo are significant. By delaying crypto ETF conversions, the SEC may inadvertently cede market leadership to foreign jurisdictions with clearer regulatory frameworks. Meanwhile, the lack of standardized guidelines for crypto ETFs hampers the agency’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 coherent, transparent approval process that aligns with the evolving financial landscape [1][2].

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)

[7] [AInvest](https://www.ainvest.com/news/bitcoin-news-today-sec-approves-pauses-bitwise-crypto-etf-conversion-1-68b-index-fund-enters-regulatory-limbo-2507/)