SEC Signals Mixed Approach to Crypto ETPs Amid Regulatory Shifts

What's Happening?

The U.S. Securities and Exchange Commission (SEC) has recently demonstrated a mixed approach towards crypto exchange-traded products (ETPs), balancing openness with caution. The SEC's Division of Corporation Finance issued a statement on July 1, 2025, clarifying its stance on crypto-related ETPs. While acknowledging prior approvals for spot bitcoin and ether ETPs, the SEC indicated that future applications involving other cryptocurrencies would face increased scrutiny. The agency emphasized the need for robust investor protections and highlighted disclosure obligations as a priority. Additionally, the SEC has approved and then stayed rule changes for Grayscale and Bitwise, reflecting internal debates and risk aversion. A significant policy shift was announced on July 29, 2025, allowing in-kind creations and redemptions for crypto ETPs, aligning them with traditional ETF structures.

Why It's Important?

The SEC's evolving stance on crypto ETPs is crucial for the digital asset industry, as it impacts how these products are structured and brought to market. The heightened scrutiny and procedural delays signal a cautious approach, potentially affecting the pace at which new crypto ETPs are approved. This regulatory environment requires legal teams to ensure compliance with SEC expectations, particularly for multi-asset or altcoin-based ETPs. The policy shift allowing in-kind redemptions could reduce operational friction and tax inefficiencies, benefiting funds and investors. However, the SEC's cautious expansion of privileges beyond bitcoin and ether indicates ongoing regulatory challenges for broader crypto ETPs.

What's Next?

The SEC's actions suggest that further regulatory clarity is anticipated, with firms needing to stay alert for new guidance. Legal counsel will play a critical role in navigating risk management and strategic decision-making for digital asset products. The SEC's Crypto Task Force and regulatory releases will be essential resources for staying ahead in this evolving space. As the SEC continues to refine its approach, sponsors and counsel must prepare for case-by-case treatment and address flagged operational and risk areas in detail.