SEC Approves Bitwise Crypto ETF, Then Pauses Over Altcoin Concerns
SEC Pauses Bitwise’s Crypto ETF Conversion After Initial Approval
SEC’s Abrupt Decision on Bitwise ETF
The U.S. Securities and Exchange Commission (SEC) made headlines when it first approved Bitwise’s request to transform its cryptocurrency index fund, BITW, into a spot exchange-traded fund (ETF) on July 7, 2025. However, just hours later, the SEC reversed this decision, citing the need for further examination. The BITW fund, which allocates 90% of its assets to Bitcoin (BTC) and Ethereum (ETH) while diversifying the remaining 10% among altcoins like Solana (SOL), XRP, and Cardano (ADA), is now the second multi-asset crypto ETF to encounter a regulatory pause this month, following a similar situation with Grayscale’s GDLC fund.
Regulatory Framework and Concerns
The SEC invoked Rule 431(e), which allows for the review of decisions made under delegated authority, as the basis for this sudden halt. Launched in 2017, the BITW fund currently manages $1.68 billion in assets and undergoes monthly rebalancing, maintaining a 2.5% expense ratio. If approved, its conversion to a spot ETF would have represented a significant milestone as the first U.S. multi-asset crypto index ETF. The SEC’s communication to Bitwise echoed the language used in the suspension of Grayscale’s ETF, indicating a pattern of regulatory caution. Observers suggest that the SEC’s hesitation may stem from ongoing uncertainties regarding the regulatory status of altcoins like XRP and ADA, which are still under scrutiny for compliance with securities laws.
Speculation Surrounding SEC’s ETF Standards
This recent reversal has sparked discussions about the SEC’s internal criteria for evaluating crypto ETFs. While the agency appears more receptive to Bitcoin and Ethereum-based products, its stance on multi-asset funds remains inconsistent. For example, the SEC is currently processing amendments related to redemption mechanics for Bitcoin and Ethereum ETFs from firms like Franklin Templeton, Fidelity, and Invesco Galaxy, while delaying decisions on funds that include altcoins. This inconsistency highlights the SEC’s struggle to balance innovation with the need for investor protection in a rapidly evolving market.
Political and Legal Implications of the SEC’s Actions
The situation surrounding the BITW fund also sheds light on the complex political and legal landscape of cryptocurrency regulation. Analysts suggest that the SEC’s recent actions may reflect broader discussions regarding the agency’s authority over digital assets, especially as alternative regulatory frameworks gain traction in Congress. The pause in the ETF conversion could hinder market access for investors looking for diversified exposure to cryptocurrencies, although Bitwise has yet to clarify whether its management fee will remain at 2.5% after the conversion.
Market Reactions and Future Outlook
The implications of this decision extend beyond Bitwise, as evidenced by XRP’s 6% price drop following the announcement, which underscores the market’s sensitivity to regulatory developments. Investors are closely monitoring each decision for insights into future policies. Additionally, the SEC’s recent review of the Canary Capital SUI ETF and 21Shares’ ONDO token-linked proposal indicates that the agency is accelerating its assessment of emerging crypto asset classes.
Criticism and Support for SEC’s Approach
Critics of the SEC’s inconsistent application of Rule 431(e) argue that it may hinder innovation in the cryptocurrency space. Conversely, supporters contend that these reviews are essential for safeguarding against market volatility and potential fraud. With over 20 ETF applications currently on the SEC’s agenda, the BITW case could set a significant precedent for how multi-asset crypto products navigate the regulatory landscape moving forward.
