Where Do Crypto ETPs Go From Here? Approvals, Stays, and In-Kind Redemptions
Over the past month, the SEC has taken a mixed approach to crypto exchange-traded products, signaling both openness and ongoing caution. Through its public statements, delayed approvals, and procedural stays, the agency is clearly evaluating how crypto funds are structured and brought to market. At the same time, however, the Commission’s recent decision to allow in-kind redemptions suggests a willingness to adapt where the market has matured. Together, these moves point to a regulatory posture that is evolving but far from settled, but when paired with the rapidly-evolving digital asset legal landscape, promises potential developments in the near future.
The Division of Corporation Finance Weighs in on Crypto ETPs
On July 1, 2025, the SEC’s Division of Corporation Finance released a public statement outlining its thinking on crypto-related exchange-traded products. The statement implicitly acknowledges that the Commission has approved spot bitcoin and ether ETPs under the Exchange Act, but it makes clear that future applications—especially those that do not involve only bitcoin and/or ether—will be reviewed under a broader set of concerns. The Division emphasized that proposals must provide protections consistent with the Securities and Exchange Acts, driving home disclosure as a core component. The Division also explained that it will be scrutinizing how ETP sponsors handle custody, valuation, and the mechanics of arbitrage.
It should be noted that while this statement does not change any legal standards, it does send a message to sponsors preparing multi-asset or altcoin-based products that their applications may be more heavily scrutinized—something seen recently with Grayscale and Bitwise’s ETF delays as explored below. It also gives the agency more room to delay or reject proposals by pointing to risks beyond investor protection, including market manipulation and liquidity concerns. Lawyers advising issuers will need to address each of the operational areas the Division flagged, even if prior bitcoin and ether-only products were approved with fewer questions.
The release gives insight into Corp. Fin.’s internal risk framework but stops short of providing clear, objective criteria for future approvals. That lack of clarity may lead to more procedural holdups in upcoming applications. To that end, until the SEC provides more specific guidance, sponsors and counsel will need to prepare for continued case-by-case treatment.
Grayscale and Bitwise Face Delays After Initial SEC Nod
In separate but related moves, the SEC first approved and then delayed proposed rule changes that would have allowed both Bitwise and Grayscale to convert their crypto funds into exchange-traded products. In Grayscale’s case, on July 1, the SEC approved and immediately issued a stay of NYSE Arca’s proposal to list the Grayscale Large Cap Fund ETF. On July 22, the SEC also approved NYSE Arca’s proposal for Bitwise to list the Bitwise 10 Crypto Index ETF. But that same day here as well, the agency stayed its own order “until the Commission orders otherwise.” No further reasoning was provided. The delays are technically permitted under Rule 431, which allows the Commission to pause approvals to gather additional input or reconsider a decision.
These same-day reversals suggest the Commission is uncomfortable moving quickly on products involving exposure beyond spot bitcoin and ether. To that end, these stays appear to provide the SEC with a procedural off-ramp to delay final approval without issuing an outright denial. While not unheard of, the Commission’s moves create regulatory uncertainty for sponsors and investors. With that said, the delays also raise questions about shifting standards and internal disagreement within the agency. From a legal perspective, the SEC is still acting within its discretion, but the sudden reversal after publication of an approval notice has the effect of confusion. Accordingly, market participants who rely on the finality of Commission orders may need to adjust expectations for the time being. As such, firms seeking approval should not interpret an initial order as final until it becomes effective—but also should not view these stays as outright rejections of these crypto ETPs.
SEC Permits In-Kind Redemptions for Crypto ETPs
Finally, on July 29, 2025, the SEC announced that it would permit in-kind creations and redemptions for crypto-related ETPs. This policy shift notably aligns crypto ETPs with traditional ETF structures, where in-kind transfers are standard. Previously, crypto funds were required to handle redemptions in cash, citing concerns over custody and market volatility. In its release, the SEC emphasized that funds must still comply with the Investment Company Act and ensure appropriate safeguards. Importantly, this new approach allows authorized participants to deliver or receive the underlying crypto assets directly.
From a practical perspective, this change may ultimately reduce the operational friction and tax inefficiencies of crypto ETPs. In-kind transactions generally reduce the need for funds to liquidate holdings, which can trigger capital gains and affect performance. By aligning crypto products with traditional ETF mechanics, the SEC appears to be acknowledging that some crypto market infrastructure has matured. Still, however, the Commission appears tepid with regard to crypto ETPs beyond bitcoin and ether. Nevertheless, legal counsel advising crypto ETP sponsors will need to evaluate whether their client’s custody, trading, and compliance systems meet the SEC’s evolving standards—especially with regard to new potential mixed-crypto ETPs. Ultimately, this development shows that the SEC is willing to adjust policy where market practices have stabilized. It is a pragmatic shift, certainly, but not a green light for all crypto ETPs just yet.
Conclusion
Despite this tumult, the most likely explanation is that the SEC is evaluating a potential framework for crypto ETPs beyond bitcoin and ether. The focused attention on ETPs through the Division of Corporation Finance’s Statement, as well as the recent in-kind ETP redemption approval, both suggest that further regulatory clarity is on the horizon. However, for now, firms should proceed with normal course and carefully evaluate the recent crypto ETP press statement issued by the Division of Corporation Finance—or engage directly with the Crypto Task Force—for more guidance.