The U.S. Securities and Exchange Commission (SEC) has implemented a new, streamlined process for listing crypto-based exchange-traded products (ETPs), a regulatory change expected to significantly increase the number of digital asset investment funds available to the public. The decision standardizes the approval mechanism, removing a major hurdle that previously slowed the introduction of new products.
Key Takeaways
- The SEC approved generic listing standards for commodity-based crypto products on major exchanges like Nasdaq, Cboe BZX, and NYSE Arca.
- This new rule eliminates the need for each individual crypto ETP to undergo a lengthy, separate approval process.
- Analysts predict a sharp rise in new crypto ETF filings and launches, mirroring a similar trend seen after stock and bond ETF rules were simplified in 2019.
- The change is seen as a significant step toward mainstream adoption of crypto assets within traditional investment portfolios.
New Rules Streamline Approval Process
The SEC's decision, announced Wednesday, establishes a standardized set of criteria for listing "commodity-based trust shares." This effectively creates a template for exchanges to follow when introducing new crypto ETPs.
Previously, each new crypto fund required its own specific rule filing under Section 19(b) of the Exchange Act. This was a time-consuming and often uncertain process for asset managers. The new framework removes this requirement for products whose underlying assets meet specific eligibility tests.
Eligibility Criteria for Faster Listings
To qualify for the new streamlined process, the underlying cryptocurrency must satisfy certain conditions. These objective tests are designed to ensure market integrity and surveillance.
Key requirements include:
- The cryptocurrency trades on a market that is a member of the Intermarket Surveillance Group (ISG).
- The cryptocurrency's futures contract is listed on a designated contract market regulated by the Commodity Futures Trading Commission (CFTC) for at least six months.
By meeting these standards, an asset is considered to have a sufficiently regulated and monitored market, allowing for a more efficient ETP listing.
What This Means for Investors
For everyday investors, this change could mean a wider variety of crypto-related investment options appearing in their brokerage accounts much faster. It lowers the barrier for asset management firms to create funds based on different digital assets beyond Bitcoin and Ethereum.
Analysts Foresee a "Deluge" of New Crypto Funds
The regulatory shift has been widely interpreted as a green light for the crypto industry. Market analysts believe the simplified process will open the floodgates for new product filings and launches.
Nate Geraci, president of NovaDius Wealth Management and a prominent ETF analyst, stated that the "crypto ETF floodgates are about to open."
"Expect an absolute deluge of new filings and launches. You may not like it, but crypto is going mainstream via the ETF wrapper."
This sentiment was echoed by Matt Hougan, chief investment officer of Bitwise, a digital asset management firm. He described the SEC's move as a "coming of age" moment for the cryptocurrency sector.
"[It's] a signal that we’ve reached the big leagues," Hougan wrote. "But it’s also just the beginning."
Historical Parallel
A similar regulatory change for stock and bond ETFs in 2019 provides a potential roadmap. According to Hougan, after the SEC approved generic listing standards for those products, the number of new ETF launches more than tripled in a single year, jumping from 117 to 370.
Launch Volume Does Not Guarantee Investment Flows
While the industry anticipates a boom in new products, some experts caution that the availability of a fund does not automatically translate to significant investor inflows. The underlying appeal of the digital asset itself remains the most critical factor.
Matt Hougan noted that fundamental interest is paramount. "The mere existence of a crypto ETP does not guarantee significant inflows," he explained. "You need fundamental interest in the underlying asset."
He pointed to the initial slow start of spot ether (ETH) ETFs as an example. These products only began attracting substantial capital nearly a year after their launch, once activity on the Ethereum network, particularly related to stablecoins, strengthened its investment case.
This suggests that ETPs tied to smaller cryptocurrencies with less established use cases may find it difficult to attract capital until their fundamental value proposition becomes clearer to investors.
Expanding Access for Institutional Investors
Despite the caveats, the new ETPs are expected to play a crucial role in bridging the gap between traditional finance and the digital asset ecosystem. These regulated products provide a familiar investment vehicle for institutions that are often prohibited from holding spot cryptocurrencies directly.
"For institutions that cannot own spot [crypto] directly, these vehicles provide a wrapper and move liquidity into the ecosystem," said Paul Howard, senior director of Wincent, in a note to CoinDesk.
The appearance of tickers for assets like Avalanche (AVAX) and Chainlink (LINK) in mainstream brokerage accounts also helps to demystify the asset class for a broader retail audience.
Which Altcoins Could Benefit Most?
With the path cleared, attention is now turning to which cryptocurrencies will be the first to be packaged into new ETPs. Experts believe large-cap altcoins with established communities and market presence are the most likely candidates.
Howard suggested that tokens such as Dogecoin (DOGE), XRP, Solana (SOL), Sui (SUI), and Aptos (APT) could be part of the next wave of products. These would cater to investors seeking opportunities and applications beyond the two largest cryptocurrencies, Bitcoin and Ethereum.
