Flood of Crypto ETFs Could Slow to a Trickle as US SEC Reviews Approval Process

The agency on 30 Jun requested public comment on "Novel ETFs," a category it said includes funds investing in crypto assets, commodity-focused instruments, single-stock strategies, heightened leverage, blockchain-enabled opportunities, private assets and event contracts.  

The move does not amount to a rule proposal, but it signals that the SEC is weighing whether the fast-track ETF regime created in 2019 should be tightened for more complex products. Since that rule was adopted, US ETF assets have grown from more than $4tn to more than $12tn, while the number of ETFs has risen from almost 1,900 to more than 4,600, according to the SEC. 

The review comes after a surge of crypto ETF activity, including products tied to assets beyond Bitcoin (BTC) and Ether (ETH).  

Crypto questions 

One of the most important questions is whether funds that mainly hold assets that are not securities should be regulated as investment companies at all. That issue is central to crypto ETFs because many major digital assets are treated differently from stocks or bonds under US securities law. 

The SEC asked whether a Novel ETF, the main strategy of which is to invest in non-security assets, should register as an investment company, or whether it would be more appropriate as a commodity trust or another type of exchange-traded product. 

Any change in that interpretation could affect how future crypto products are structured, what disclosures they must provide and how quickly they can come to market. 

The agency is also asking whether a rule allowing qualifying ETFs to operate without individual exemptive orders should be amended for Novel ETFs. For crypto funds issuers, that could mean fewer products qualifying for streamlined treatment, particularly funds tied to single tokens, highly concentrated portfolios or more experimental strategies. 

Launch delays 

The most immediate implication may be timing. 

Many ETF registration amendments can currently become automatically effective after 60 or 75 days. The SEC asked whether those timelines should be extended for Novel ETFs and whether the Commission should be able to delay effectiveness on its own initiative. 

That would give SEC staff more control over crypto ETF launches and reduce issuers’ ability to rely on automatic deadlines. 

The agency also flagged concerns about issuers filing products rapidly to gain a first-mover advantage, copying competitors’ filings and submitting funds that never launch. The request says market participants have suggested artificial intelligence may be accelerating the speed at which filings can be mimicked. 

The SEC floated potential responses including upfront registration fees and automatic deregistration for funds that become effective but never launch. 

What it means 

For investors, the changes could mean stronger disclosures and fewer rushed products. For issuers, they could mean slower approvals, higher compliance costs and less certainty around launch timelines.