Regulatory Reset

Reset

Regulated crypto product developments through the half-year have generally vindicated The 'Regulatory Reset’ thesis. From crypto working group, to Task Force; the cessation of almost all of the SEC’s lawsuits against crypto platforms, followed by 5 distinct ‘roundtables’ with industry contributors. These covered topics like how to determine whether assets are securities or commodities, custody, how regulation can evolve to encompass crypto trading, and most recently, the first, public, if tentative, engagement by the Commission, by its own volition, on the subject of “DeFi and the American Spirit.”

Caution

Still, the SEC’s broader signaling on crypto investment products - meaning chiefly ETFs - throughout the half year, has been a reminder of its more customary cautious footing.

This stance is revealed by the state of play of spot crypto ETF filings. Specifically, filings to list funds investing in digital assets which are still ‘novel’ to stock markets (i.e., everything except Bitcoin and Ether).

All applications for these novel ETFs have been punted: the Commission has begun extended reviews for each filing in play beyond the 45-day mark. That's the amount of time that typically needs to elapse, as directed by the Exchange Act, before the SEC typically either rejects the application, extends consideration while inviting public comment, or extends its review together with a statement that it simply needs more time.

At stake

As well as filings for 'novel' digital assets, many issuers have made it known, privately or publicly, since Ether ETFs came to the U.S. market in July 2024, they wanted to move towards the next obvious progression for these funds – by somehow including staking rewards.

Firms putting their heads above the parapet so far with applications to amend existing ETH ETFs: 21Shares, Bitwise, Fidelity and Grayscale.

All of these applications have also been shunted - at least once.

Extensive

We’ve tallied what we believe to be all filings in both categories in the table below. The sizable proportion of funds looking to utilize a regulated CF Benchmarks index for net asset value (NAV) calculation is denoted with bold italics.

It's worth noting the list would be even longer if it included the amendments filed by NYSE Arca, Nasdaq and Cboe BZX since April, on behalf of already listed funds whose issuers want to switch from cash creation/redemption to the in-kind model.

The agency is still in the comment-gathering and possible extension phase for these applications.

REX/Osprey filings prep for takeoff

Meanwhile, we’ve also excluded another subcategory of planned filings from the table. These include a clutch of applications tabled by REX Shares/Osprey, to list separate Solana and Ether staking ETFs, as well as several funds that will invest in meme coins, like Trump, DOGE, BONK and others.

For the moment, these filings remain relatively distant prospects compared to the funds in the table. That's because:

1. They include staking (as noted above, all staking ETF proposals have hit a roadblock)
2. Not only that, these filings are also ’40-Act registrations. Such applications don’t automatically trigger the statutory start of 45-day review periods, with a 240-day max review period. ’33-Act filings do; and all of applications listed in the table above were submitted on the basis of the Securities Act of 1933.

This means the '40-Act filings by REX/Osprey filings mentioned above need an exchange to essentially start their review process with a 19b-4 filing.

At last check, this hadn’t happened for those specific REX/Osprey filings.

It's a similar situation for Canary Capital’s Canary Staked CRO ETF. Plans for that fund also, for now, consist of just a registration statement (S-1) and no exchange filing (19b-4).

Familiar pace

One key overall takeaway: regulatory reset or not, the SEC does not appear to be inclined to progress the crypto ETF market on to the next set of assets beyond Bitcoin and Ether in a relatively accelerated fashion.

The same applies to filings for staking, and in-kind creation/redemption. Instead, proposals to convert existing funds are being dealt with at a pace all digital asset ETF managers are familiar with.