SEC Simplifies Crypto ETF Approval Process

The U.S. Securities and Exchange Commission (SEC) is in the process of developing new general listing standards, which are anticipated to accelerate the approval mechanism for exchange-traded products (ETPs) within the cryptocurrency sector. Matt Hougan, Chief Investment Officer at Bitwise, anticipates that these adjustments could pave the way for several cryptocurrency-focused ETFs to debut by the year’s end.

How Will General Listing Standards Impact ETPs?

Currently, the approval journey for each new spot crypto ETP in the U.S. involves a lengthy and uncertain SEC review. This process can extend up to 240 days and doesn’t always end in approval. To illustrate, from the first spot ETF application for Bitcoin in 2013, an actual approval came only in 2024. The SEC’s proposed general listing standards aim to streamline this by establishing pre-set criteria linked to the presence of cryptocurrencies in U.S. regulated futures markets.

With these criteria in place, the approval time might drastically shorten to just 75 days. If these forecasts are met, a wide array of cryptocurrencies, including Solana, XRP, Chainlink, Cardano, Avalanche, and others, could enter the ETP market more rapidly.

What Could this Mean for the Crypto ETF Landscape?

The potential revamp of SEC’s listing standards might catalyze a substantial rise in the cryptocurrency ETF market. Drawing from history, U.S. regulatory updates in 2019 triggered a spike in traditional ETF offerings, skyrocketing the yearly average from 117 to 370 new launches. A parallel scenario is brewing for the crypto sphere.

This regulatory shift could lead to the rapid emergence of numerous crypto ETFs, targeting both single assets and broader indexes. The entry of not only crypto-oriented managers but also conventional asset management firms into the crypto ETF arena is expected.

However, the mere introduction of new ETFs doesn’t ensure immediate capital attraction. For instance, while spot Ethereum ETFs started accumulating assets following a surge in stablecoin demand, crypto ETFs like Bitcoin Cash might face challenges without substantial investor interest. Still, these products may expand crypto access to a wider investor demographic.

Key Takeaways:

• Approval processes for crypto ETPs might reduce from 240 days to 75 days.
• General listing standards will align with the presence in regulated futures markets.
• Potential parallel growth in the crypto ETF market similar to post-2019 traditional ETF growth.
• Entry of traditional asset managers expected following regulation changes.
• Increased accessibility to crypto investments for a broader audience.

The SEC’s latest undertaking signifies a pivotal moment for the cryptocurrency investment landscape. As anticipated by Bitwise CIO Matt Hougan, this regulation could democratize and expedite access to crypto investments, diversifying and expanding the market reach.

“If executed well, this could fundamentally reshape the investor landscape,” Hougan stated, reflecting on the potential industry impact.