Regulators Outsource Crypto ETF Eligibility to Futures Market Maturity

The U.S. Securities and Exchange Commission (SEC) has introduced a new regulatory framework that significantly streamlines the approval process for cryptocurrency exchange-traded funds (ETFs). This development allows ETFs to be listed on exchanges if the underlying digital asset has a futures contract on a designated market for at least six months. As a result, cryptocurrencies with well-established futures markets, particularly those trading on platforms like Coinbase Derivatives and the Chicago Mercantile Exchange (CME), are now on a clearer path to ETF approval.

This shift effectively delegates part of the approval authority to the Commodity Futures Trading Commission (CFTC) and Coinbase, with the CFTC overseeing futures designations and Coinbase serving as a primary market for many cryptocurrencies. The new rule eliminates the need for the SEC to impose additional criteria such as market capitalization or liquidity thresholds, focusing instead on the maturity of the futures market for the underlying asset. According to Eric Balchunas, a leading ETF analyst at Bloomberg, this opens the door for approximately a dozen major tokens—including Bitcoin, Ethereum, Solana, XRP, Cardano, and Dogecoin—to qualify for ETF approval, with many expected to be approved by October 2025.

The regulatory shift also introduces a more efficient approval timeline, with qualifying products potentially receiving clearance after a 75-day review period under the CBOE’s Generic Listing Standards. This framework removes the need for each ETF to go through the traditional 19b-4 rule change process, which previously required individual exchange applications for each product. On July 29, the SEC also approved in-kind creation and redemption mechanisms for crypto ETFs, allowing authorized participants to exchange shares for underlying cryptocurrencies instead of cash. This mechanism is expected to reduce costs and improve efficiency for institutional investors by allowing them to defer capital gains until they choose to sell the received crypto assets.

While the new framework primarily benefits established cryptocurrencies with active futures markets, it introduces additional hurdles for newer or speculative tokens that lack such infrastructure. Assets like Solana-based Bonk or Trump Coin, which lack active futures markets, must pursue a more complex regulatory route under the Investment Company Act of 1940. According to James Seyffart, an ETF analyst at Bloomberg Intelligence, the SEC is effectively outsourcing the decision on which digital assets qualify for ETF status to the CFTC, which controls the eligibility of futures contracts. This has shifted the focus from the SEC's direct oversight to market infrastructure maturity.

Market dynamics are also evolving rapidly in response to these regulatory changes. Institutional adoption is on the rise, with major crypto ETFs such as BlackRock’s IBIT and ETHA experiencing significant inflows. In recent weeks, BlackRock’s IBIT alone recorded $147.36 million in inflows, contributing to a total of $157 million in daily inflows for Bitcoin ETFs. Ethereum ETFs also attracted $65.14 million in inflows, indicating growing institutional interest. Additionally, corporate treasury adoption has expanded beyond Bitcoin, with companies like SharpLink Gaming becoming major holders of Ethereum. Corporate entities have reportedly purchased at least $1.6 billion worth of ETH in recent weeks, further demonstrating the increasing legitimacy of digital assets in traditional finance.

Despite the positive momentum, regulatory uncertainty remains. Earlier in July, the SEC controversially approved and immediately reversed its decision to approve Bitwise’s 10 Crypto Index ETF under Rule 431. The fund, which would have allocated 85% of its portfolio to previously approved assets like Bitcoin and Ethereum, faced a sudden stay order from Assistant Secretary Sherry Haywood. This episode underscores the evolving and sometimes unpredictable nature of the regulatory landscape. Nonetheless, the recent developments signal a broader acceptance of crypto assets within the traditional financial system and could pave the way for further innovation in crypto-related investment products.