SEC Grants Accelerated Approval for Bitwise 10 Crypto Index ETF

The US Securities and Exchange Commission (SEC) has made a significant move by providing expedited approval to NYSE Arca for listing the Bitwise 10 Crypto Index ETF. This multi-asset product encompasses a diverse range of digital currencies, including XRP, Solana, Cardano, Bitcoin, and Ethereum. The SEC’s order, identified as Release No. 34-103531, affirms that the proposal aligns with Section 6(b)(5) of the Exchange Act, emphasizing its design to thwart fraudulent practices, promote equitable trading principles, and safeguard investors and the public interest.

Spotlight on Bitwise’s Proposed ETF Transformation

Currently trading over the counter under the symbol BITW, Bitwise’s trust was poised for a transition to a national exchange as an exchange-traded fund (ETF). The SEC’s approval delineated the fund’s asset composition: 78.72% Bitcoin, 11.10% Ether, and 4.97% XRP, with Solana, Cardano, Sui, Chainlink, Avalanche, Litecoin, and Polkadot making up the remainder. Monthly rebalancing is a feature, but the SEC mandates that a minimum of 85% of the portfolio consists of assets already supporting other SEC-sanctioned exchange-traded products, thereby limiting lesser-known altcoins to a combined 15% share.

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Implications of the SEC’s Intervention

Shortly after the Division of Trading & Markets granted its delegated approval, the Commission’s Office of the Secretary intervened. Assistant Secretary Sherry R. Haywood, referencing Rule 431 of the SEC’s Rules of Practice, informed NYSE Arca that the Commission will review the delegated action, resulting in the suspension of the July 22 order until further notice. This pause retains BITW’s current OTC-traded status.

Market Reactions and Speculations

The SEC’s procedural intervention prompted swift responses from ETF specialists on social media platforms. Bloomberg analyst James Seyffart noted, “We have the approval of the Bitwise 10 Index fund — BITW — yet it faces a suspension similar to Grayscale’s GDLC earlier this month.” Fellow analyst Nate Geraci described the situation as “bizarre,” emphasizing that both Bitwise and Grayscale should be permitted to swiftly transition to an ETF format.

Internal Debates Within the SEC

The current scenario mirrors the Commission’s handling of Grayscale’s Digital Large Cap ETF earlier in July, highlighting internal discord regarding the pace of expanding US crypto-ETF offerings beyond single-asset products. The discretionary and open-ended nature of Rule 431 reviews means there’s no statutory deadline for the Commission to either lift the pause or issue a final ruling. Historically, these reviews can span from several weeks to months, during which the approval order remains without legal effect.

Investor Concerns and Future Prospects

Market participants are primarily concerned with two issues. First, whether the inclusion of XRP, a significant point of contention in the SEC’s crypto enforcement agenda, prompted one or more commissioners to call for additional scrutiny. Second, there’s speculation about whether the Commission will leverage the review process to impose new conditions on multi-asset crypto ETFs, such as enhanced custody, pricing, or surveillance standards.

While the suspension doesn’t immediately impact BITW shareholders, Bitwise has argued that an NYSE-listed ETF would narrow spreads, eliminate premium-discount discrepancies, and broaden distribution via brokerage platforms that currently exclude OTC products. The company contends that exchange trading, under regulation, would enhance transparency and investor protection by integrating shares into the consolidated tape and Exchange Act’s reporting framework.

The Path Forward for Diversified Crypto Exposure

For now, the future of the fund is in the hands of a Commission clearly grappling with the pace at which to introduce diversified crypto exposure to the US market. Until the review reaches its conclusion, investors seeking a regulated vehicle that combines Bitcoin, Ether, XRP, and other prominent altcoins will need to remain patient or continue relying on OTC trusts lacking the structural safeguards inherent in an ETF.

At the time of writing, XRP is trading at $3.349.

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