Regulators Tangle with Crypto's Legal Identity in ETF Stalemate

The U.S. Securities and Exchange Commission (SEC) has announced a delay in its decision regarding several proposed exchange-traded funds (ETFs) focused on Ethereum (ETH), XRP, and Solana (SOL), citing the need for further review amid evolving regulatory considerations. The agency has not provided a specific timeline for when a final decision will be made, but the delay underscores the ongoing complexity in classifying certain cryptocurrencies under existing securities laws .

The pending applications include both spot and futures-based ETFs, with some firms having previously withdrawn proposals in anticipation of regulatory feedback. The SEC’s current review has been described by industry participants as more rigorous than initial expectations, with regulators scrutinizing issues such as market manipulation, investor protection, and the broader implications of ETF approvals on market structure .

Industry observers note that the delay may reflect the SEC’s internal disagreements over how to categorize digital assets like Ethereum, XRP, and Solana under the Howey Test—a framework used to determine whether a particular investment qualifies as a security. While Ethereum is not currently classified as a security, XRP and Solana have faced legal challenges from the SEC, which could influence the agency’s approach to ETF authorizations .

Market participants have expressed mixed reactions to the news. Some asset managers have indicated that the delay is not unexpected and may allow for further refinement of their proposals, while others view it as a setback for the broader adoption of crypto-backed ETFs in the U.S. market. The delay also comes amid growing interest in digital assets among institutional investors, with demand for crypto exposure continuing to rise despite regulatory uncertainty .

The regulatory landscape for digital assets remains in flux, with several states and industry groups advocating for clearer guidelines. While the SEC has emphasized the need for a consistent and protective framework, critics argue that the agency’s actions have, in some cases, created ambiguity and hindered innovation. The resolution of these ETF applications could serve as a key milestone in determining whether the U.S. will align with other jurisdictions—such as Canada and the United Kingdom—that have already approved crypto ETFs .