SEC Delays Crypto ETF Approvals After Greenlights Amid Regulatory Strategy Debates

The U.S. Securities and Exchange Commission (SEC) has drawn scrutiny for delaying the final approval of crypto exchange-traded fund (ETF) applications even after granting initial greenlights. This pattern emerged most recently with Bitwise’s attempt to convert its over-the-counter (OTC) crypto index fund into a spot ETF. On July 22, the SEC’s Division of Trading and Markets expedited the approval of Bitwise’s request, but just hours later, the SEC’s Office of the Secretary issued a stay order, temporarily halting the fund’s transition to ETF status under Rule 8.500-E. The Bitwise 10 Crypto Index Fund, which holds $1.68 billion in assets and is heavily weighted toward Bitcoin (73.8%) and Ethereum (13.8%), had first submitted its ETF conversion proposal in November 2024 [1].

This move mirrors the SEC’s treatment of Grayscale’s Digital Large Cap Fund (GDLC) earlier in July. After the agency approved Grayscale’s conversion request, it similarly imposed a stay the following day. Grayscale responded by challenging the decision, arguing that the approval was binding due to the expiration of the SEC’s 240-day statutory review period. The firm claimed the Commission lacked authority to reverse its decision, which it described as “effectively passed into law” [1].

Analysts and legal experts have proposed contrasting interpretations of the SEC’s actions. Bloomberg ETF analyst James Seyffart suggested the delays could be strategic, aimed at delaying the launch of crypto ETFs until a broader regulatory framework is finalized. According to Seyffart, the SEC may be working on a standardized approach to govern digital assets in ETFs, potentially allowing issuers to bypass individual rule-change requests if their tokens meet predefined criteria [1]. Such a framework could streamline future applications by replacing the current 240-day review process with a 75-day Form S-1 registration [1].

Finance attorney Scott Johnsson offered an alternative view, positing that the SEC might be exploiting delegated authority to prolong reviews, possibly to avoid penalties for exceeding statutory deadlines or to prevent adverse legal precedents. For instance, the delays could shield the agency from being forced to approve applications under strict timelines, as seen in Grayscale’s case. However, Johnsson noted these tactics are unlikely to persist under SEC Chair Gary Gensler, whose pro-crypto stance suggests a more transparent approach [1].

The uncertainty has fueled speculation about the SEC’s long-term strategy. Critics argue that the delays undermine market confidence and create regulatory arbitrage, as similar products trade on foreign exchanges. Meanwhile, proponents of the SEC’s approach emphasize the need for caution, given the unique risks of crypto assets, including price volatility and custody challenges.

The outcomes of pending applications, including those from Bitwise and Grayscale, remain pivotal. With a critical deadline approaching in October, when final decisions on several high-profile ETFs are expected, the SEC’s next steps could shape the future of crypto investing in the U.S. [1].

Sources:

[1] [Why the SEC is stalling new crypto ETFs even after greenlighting them] [https://cryptoslate.com/why-the-sec-is-stalling-new-crypto-etfs-even-after-greenlighting-them/]