The future of crypto ETPs

The regulatory landscape for crypto exchange-traded products (ETPs) is changing rapidly, placing new demands on legal leaders and compliance teams.

In the past month, the US Securities and Exchange Commission (SEC) has signaled both openness and ongoing caution toward crypto ETPs, a mixed approach that general counsel should track closely. Between high-profile approvals, procedural stays and a pivotal policy shift on in-kind redemptions, the SEC is clearly evaluating how crypto funds are structured, reviewed and brought to market. This evolving posture, combined with the fast-paced legal environment for digital assets, means more changes are likely on the horizon—and those responsible for risk and compliance should be especially prepared.

SEC Division of Corporation Finance comments on crypto ETPs

On July 1, 2025, the SEC’s Division of Corporation Finance issued a public statement providing clarity on its current perspective regarding crypto-related ETPs. The statement implicitly acknowledges prior approvals for spot bitcoin and ether ETPs, but made it clear that future applications—especially those involving other cryptocurrencies—will face heightened scrutiny. The Division underscored the need for robust investor protections consistent with the Securities and Exchange Acts, highlighting disclosure obligations as a top priority. Additionally, the Division will focus on custody, asset valuation and arbitrage mechanics, emphasizing the operational complexities unique to digital assets.

Although the statement does not change legal standards outright, it puts the onus on sponsors to demonstrate strong compliance systems, particularly for multi-asset or altcoin-based ETPs. Recent delays for Grayscale and Bitwise illustrate this more rigorous approach. The SEC’s expanded focus now includes market manipulation and liquidity risks, giving the agency greater latitude to slow or deny applications. For general counsel, this means all flagged operational and risk areas must be addressed in detail, even if prior bitcoin and ether-only funds received approvals with fewer questions. The lack of clear, objective criteria for new ETPs means that procedural delays may exist until more specific guidance emerges and sponsors and counsel will need to prepare for continued case-by-case treatment.

Delayed approvals for Grayscale and Bitwise

In a series of closely watched moves, the SEC first approved and then immediately stayed rule changes that would have permitted Bitwise and Grayscale to convert their popular crypto funds into ETPs. For example, the SEC approved and immediately issued a stay of NYSE Arca’s bid to list the Grayscale Large Cap Fund ETF on July 1, 2025, and did the same with Bitwise’s 10 Crypto Index ETF on July 22. The lack of detailed explanation or further reasoning for these same-day reversals points to internal debates and increased risk aversion—especially for products offering exposure beyond spot bitcoin and ether.

Under Rule 431, the SEC retains the authority to temporarily halt approvals for deeper review or to request additional information. For counsel, these moves mean that even after an initial SEC order, regulatory uncertainty remains until the stay is lifted and the order becomes effective. Legal teams should not interpret a first approval as a guaranteed green light, but should also note that a stay is not an outright rejection. The shifting standards and internal deliberations within the SEC mean that clear communication with business partners and investors is essential as the regulatory process evolves.

SEC approval for crypto ETP in-kind redemptions

On July 29, 2025, the SEC announced a major policy shift: allowing in-kind creations and redemptions for crypto ETPs. This policy shift aligns crypto ETPs with traditional ETF structures, reducing operational friction and potential tax inefficiencies. Historically, crypto funds were required to process all redemptions in cash due to concerns over custody and volatility. With this change, authorized participants can exchange underlying crypto assets directly, provided the funds remain compliant with the Investment Company Act and features appropriate safeguards.

From a practical perspective, this change presents both opportunity and risk. In-kind transactions can help reduce the need for funds to liquidate holdings, which can trigger capital gains and affect performance. However, legal teams must confirm that their organization’s custody, trading and compliance protocols are robust enough to meet the SEC’s expectations—especially when sponsoring or managing new types of multi-crypto ETPs. The SEC’s willingness to modernize its approach by aligning crypto products with traditional ETF mechanics signals a pragmatic recognition of the crypto market infrastructure maturing, but it remains cautious about expanding these privileges to all crypto ETPs beyond bitcoin and ether.

Conclusion

The SEC’s recent actions and statements make it clear that the regulatory environment for crypto ETPs is far from settled but that further regulatory clarity is on the horizon. Firms and general counsel should stay alert for further SEC guidance and continue standard compliance practices while carefully tracking new developments regarding a potential framework for crypto ETPs. Engaging proactively with the SEC’s Crypto Task Force and reviewing the latest regulatory releases will be essential for staying ahead in this evolving space. As the SEC’s posture continues to shift, legal counsel will play a critical role in risk management, product development and strategic decision-making for digital asset products.