SEC Grants Accelerated Approval for Bitwise's Crypto ETF but Suspends Conversion for Review

The U.S. Securities and Exchange Commission (SEC) on Tuesday granted an accelerated approval for Bitwise’s crypto index fund to convert into an exchange-traded fund (ETF) but immediately placed the decision under review, effectively suspending the process. The move left the Bitwise 10 Crypto Index Fund, which trades under the ticker BITW, in regulatory limbo pending further action. The fund, which includes exposure to Bitcoin and Ethereum, had applied for the conversion in November 2023, seeking to become the first multi-asset crypto index ETF in the U.S.

The SEC’s division of trading and markets authorized the expedited approval, allowing Bitwise to request early effectiveness for the registration. However, the agency’s assistant secretary, Sherry Haywood, issued a letter stating the order was “stayed” and that the full commission would review the staff-level decision. This procedural step mirrors a similar pattern observed in Grayscale’s Digital Large Cap ETF conversion earlier this year, which was initially approved on July 1 before being suspended shortly afterward.

Analysts have highlighted the SEC’s actions as indicative of broader uncertainty in its approach to regulating crypto ETFs. James Seyffart, a Bloomberg ETF analyst, noted that the pause suggests one or multiple commissioners intervened, preventing the conversion until further review. Nate Geraci of NovaDius Wealth Management called the situation “bizarre,” drawing parallels to Grayscale’s delayed approval. Eric Balchunas, another industry analyst, speculated that the SEC may be delaying decisions to establish consistent listing standards for crypto ETFs before granting final approvals.

Scott Johnsson, a general partner at Van Buren Capital, suggested the pause could reflect strategic maneuvering. He proposed that the SEC, under Chair Paul Atkins, might aim to bypass a 240-day statutory period for final approval by invoking a discretionary review. Alternatively, he speculated the move could prevent potential challenges from the lone Democratic commissioner, Caroline Crenshaw, who might seek to overturn the decision. Balchunas echoed this sentiment, theorizing that the SEC may be stalling until it finalizes a universal framework for crypto ETFs, which he anticipates could be announced in October.

The SEC’s actions have raised questions about the consistency of its regulatory approach. The agency’s use of Rule 431—a procedural tool allowing the full commission to review staff-level approvals—has become a recurring theme in crypto ETF applications. This mechanism was similarly employed in Grayscale’s case, with the SEC citing the need to “review the delegated action.” Analysts argue this approach may reflect an effort to avoid setting conflicting precedents, particularly for multi-asset funds containing less-established tokens like XRP or Cardano, which lack standalone ETF approvals.

Meanwhile, the SEC has extended deadlines for other crypto-related applications, including Bitwise’s Bitcoin and Ether spot ETFs, and is exploring streamlined approval processes for select crypto investment vehicles. These efforts suggest the agency is balancing its regulatory caution with efforts to accommodate growing demand for crypto exposure. However, the repeated use of discretionary pauses underscores the lack of clear guidelines for applicants, creating uncertainty for firms and investors alike.

The outcome of Bitwise’s application could set a precedent for future multi-asset crypto ETFs. If approved, BITW would offer investors a diversified exposure to multiple cryptocurrencies, a structure the SEC has yet to fully endorse. The delay, however, highlights the agency’s emphasis on consistent standards, particularly for tokens without standalone ETFs. Until the SEC clarifies its criteria, the path for crypto ETFs remains unpredictable, with applicants navigating a regulatory environment that prioritizes oversight over rapid market expansion.