SEC Issues New Guidance for Crypto ETFs Streamlining Market Access

The US Securities and Exchange Commission (SEC) has issued new guidance for issuers of crypto exchange-traded funds (ETFs), aiming to streamline the process of bringing token-based exchange-traded products to market. The guidance, published on July 1, outlines the specific disclosures that crypto ETF issuers must include in their filings. This move is part of the SEC's evolving stance on crypto oversight, as token ETPs gain popularity, particularly following strong inflows into spot Bitcoin ETFs.

The new disclosure standards cover a wide range of topics, including how net asset value is calculated, the selection of service providers, detailed descriptions of custody practices, and potential conflicts of interest. The guidance applies to both spot and derivative-based crypto ETPs that are registered under the Securities Act of 1933 and the Exchange Act of 1934. The SEC has emphasized the need for tailored disclosures that are specific to each issuer's structure, while also highlighting key areas that will receive close scrutiny. These areas include the selection and valuation of underlying assets, custody and insurance management, conflicts of interest, and the mechanics of creation and redemption, especially during volatile or illiquid market conditions.

The SEC's new guidance comes as the regulator and exchanges work together on a generic listing framework. This framework could allow certain token-based ETFs to bypass the traditional 19b-4 rule change process, potentially reducing red tape and speeding up the time to market. If adopted, this would mark a significant shift, as exchanges could list a qualifying crypto ETP after a 75-day review. This move reflects the SEC's commitment to bringing more structure to the fast-evolving crypto ETF market while protecting investors.

On the same day the guidance was issued, the SEC approved Grayscale’s request to convert its Digital Large Cap Fund into a spot ETF. The fund, which holds a diversified basket of crypto tokens, will now trade on US exchanges, marking one of the first regulated multi-asset digital funds to do so. The market has welcomed single-asset Bitcoin ETFs, but multi-token products like Grayscale’s are still relatively rare. The SEC's expanded guidance could change that, as issuers who meet the detailed disclosure requirements may bring more such funds to market.

Industry participants have long called for consistent treatment of crypto ETFs, and the SEC's latest signal indicates a readiness to respond. The regulator aims to bring more structure to the fast-evolving space while remaining committed to protecting investors. The new guidance is a significant step towards achieving this goal, providing clearer paths for issuers to navigate the regulatory landscape and bring innovative crypto ETFs to market.