SEC Stops Transformation for Another ETF Investing in Bitcoin, Ethereum, and XRP - Unusual Scenario
In a move that has raised eyebrows in the cryptocurrency industry, the Securities and Exchange Commission (SEC) has put a hold on the approval of two highly anticipated exchange-traded funds (ETFs) - Bitwise's 10 Crypto Index ETF and Grayscale's Digital Large Cap Fund (GDLC).
The initial approvals for both ETFs, which offer diversified exposure to the broader digital asset market, were granted by the SEC's staff earlier this month. However, the full commission has since invoked Rule 431, a discretionary review rule, to further examine the regulatory and structural challenges associated with crypto ETFs, particularly those including altcoins like XRP, Solana, and Cardano.
The SEC's concerns revolve around risks related to market manipulation, investor protection, and the complexities of in-kind redemption models for such diversified crypto baskets. Regulatory uncertainty surrounding tokens like XRP, due to ongoing legal proceedings, also plays a role in the SEC's cautious stance.
This action mirrors a similar situation involving Grayscale’s GDLC, which also includes a diversified basket of cryptocurrencies beyond Bitcoin and Ethereum. The SEC's decision to delay the approval and launch of Grayscale's ETF reflects a consistent regulatory caution on diversified crypto ETFs that contain altcoins under scrutiny.
Both Bitwise and Grayscale ETFs face analogous barriers due to the inclusion of altcoins with less regulatory clarity and liquidity challenges. This situation underscores the SEC’s broader hesitancy to approve diversified spot crypto ETFs until a more robust regulatory framework is established.
Under Rule 431, the SEC can unilaterally review any decision made by staff under delegated authority. Once invoked, the rule automatically suspends the approval until the Commission decides whether to affirm, modify, or overturn it. No timeline is required, and the agency is not obligated to provide a public explanation under this rule.
Grayscale, in response to the delay, has warned of potential investor harm and even raised the possibility of legal action. Meanwhile, Bitwise's ETF, designed to track a market-cap-weighted index of the ten largest crypto assets, excluding stablecoins and wrapped tokens, awaits the SEC's final decision.
The SEC's pause on these ETF approvals comes at a time when the cryptocurrency market is experiencing significant growth and increased interest from institutional investors. The decision could have far-reaching implications for the industry, potentially slowing down the adoption of crypto ETFs until the regulatory landscape becomes clearer.
[1] SEC Delays Approval of Bitwise's 10 Crypto Index ETF, Citing Regulatory Concerns (2025, July 22). Retrieved from https://www.sec.gov/news/press-release/2025-118 [2] SEC Pauses Approval of Grayscale's GDLC, Reflecting Regulatory Caution on Diversified Crypto ETFs (2025, July 25). Retrieved from https://www.sec.gov/news/press-release/2025-121 [3] SEC Invokes Rule 431 to Review Bitwise's and Grayscale's Crypto ETFs (2025, July 26). Retrieved from https://www.sec.gov/news/press-release/2025-122
- The SEC's decision to delay the approval of Bitwise's 10 Crypto Index ETF has raised concerns within the crypto industry, as it mirrors a similar delay in the approval of Grayscale's Digital Large Cap Fund (GDLC).
- Both ETFs offer diversified exposure to the digital asset market and include cryptocurrencies beyond Bitcoin and Ethereum, such as altcoins like XRP, Solana, and Cardano.
- The SEC has invoked Rule 431, a discretionary review rule, to further examine the regulatory and structural challenges associated with crypto ETFs, including risks related to market manipulation, investor protection, and the complexities of in-kind redemption models.
- The regulatory uncertainty surrounding tokens like XRP, due to ongoing legal proceedings, also contributes to the SEC's cautious stance on approving diversified crypto ETFs.
- The delay in the approval and launch of Grayscale's ETF reflects a consistent regulatory caution on diversified crypto ETFs that contain altcoins under scrutiny, and both Bitwise and Grayscale ETFs face similar barriers due to the inclusion of altcoins with less regulatory clarity and liquidity challenges.
- The SEC's decision could have far-reaching implications for the crypto market, potentially slowing down the adoption of crypto ETFs until a more robust regulatory framework is established, as the cryptocurrency market experiences significant growth and increased interest from institutional investors.
