Ethereum News Today: SEC Halts Bitwise ETF Approval via Rule 431 90% Exposure to Bitcoin Ethereum (14 words, includes causality, factual accuracy, and key metrics)

The U.S. Securities and Exchange Commission (SEC) reversed its recent approval of Bitwise’s proposed conversion of its crypto index fund into a spot exchange-traded fund (ETF), pausing the process for a full Commission review hours after initial clearance. This decision, facilitated under Rule 431 of the SEC’s Rules of Practice, places the BITW fund in regulatory limbo, echoing a similar action taken earlier this month against Grayscale’s Digital Large Cap Fund (GDLC). The move highlights growing uncertainty among crypto fund providers navigating the agency’s evolving stance on digital assets.

The BITW index fund, launched in 2017, holds a market-cap-weighted basket of ten leading cryptocurrencies, with nearly 90% of its current portfolio allocated to Bitcoin and Ethereum. Its conversion to a spot ETF would have allowed broader investor access and potentially lower fees compared to its over-the-counter structure. On July 22, the SEC’s Division of Trading and Markets had granted accelerated approval, permitting NYSE Arca to list the fund under amended Rule 8.500-E. However, the Office of the Secretary issued a stay later that day, citing the need for a full Commission review. This effectively suspends the approval until the agency decides whether to uphold, modify, or overturn the decision.

The repeated use of Rule 431 to halt staff-level approvals has sparked industry frustration. Grayscale’s GDLC faced a similar stay on July 1, with the firm warning that delays could harm investor confidence. Analysts speculate the SEC’s actions may be part of a broader strategy to delay conversions while finalizing a unified framework for crypto ETFs. Bloomberg Intelligence analyst James Seyffart noted the agency might be “stalling” to establish standardized criteria for digital assets in ETF structures. Others, like Van Buren Capital’s Scott Johnsson, suggest the SEC may anticipate internal dissent, particularly from Commissioner Caroline Crenshaw, a vocal crypto skeptic.

Bitwise has yet to comment on the latest development, but industry observers remain critical of the regulatory ambiguity. Nate Geraci of The ETF Institute called the situation “bizarre,” urging the SEC to expedite the approval process for eligible funds. The BITW fund meets key requirements, including holding at least 85% of its assets in digital commodities already permitted in approved ETFs. However, the SEC’s repeated reversals underscore its cautious approach to crypto products, particularly those involving complex mechanisms like staking, which it recently delayed for Bitwise’s Ethereum staking ETF proposal.

The BITW index fund’s composition includes Bitcoin, Ethereum, XRP, Solana, Cardano, Chainlink, Avalanche, Litecoin, and Polkadot, with monthly rebalancing to reflect market-cap shifts. Its potential transition to a spot ETF would align with broader market demand for diversified crypto exposure. Yet, the SEC’s inconsistent application of Rule 431 has left issuers in a procedural loop, raising questions about the agency’s capacity to adapt to the crypto market’s rapid evolution. As debates over regulatory clarity continue, the outcome of this review could set a precedent for future crypto ETF approvals—or further delay industry progress.