The US Securities and Exchange Commission (SEC) has postponed its decision on multiple cryptocurrency exchange-traded fund (ETF) applications.
The affected ETFs are tied to altcoins such as Solana ($SOL), XRP ($XRP), Litecoin ($LTC), and Dogecoin ($DOGE).
The delay is part of the SEC’s cautious approach to cryptocurrency regulation, leaving investors and issuers uncertain about when—or if—these funds will be approved.
While the SEC is taking more time to review these ETF applications, it has also acknowledged new filings, such as Franklin Templeton’s XRP ETF. This mixed response has raised questions about the agency’s decision-making process.
Analysts believe the SEC is navigating internal changes and political pressure, contributing to the delays.
The SEC announcement stated that it is extending the review period for several proposed altcoin ETFs. This affects ETF applications from major firms like Grayscale and Canary.
Among the delayed proposals are Solana ETFs from 21Shares, Canary, and VanEck, as well as Canary’s Litecoin and XRP spot ETFs.
Despite these postponements, one application has been allowed to move forward—Franklin Templeton’s XRP ETF.
The reason behind this selective approach remains unclear. Some industry experts speculate that the SEC is delaying certain applications to allow more time for internal discussions or to address recent criticism of its stance on cryptocurrency regulation.
A key factor in these delays is a vacant seat on the SEC’s leadership team. This position requires confirmation from the US Senate, and until it is filled, the agency may be hesitant to make significant regulatory decisions.
The SEC’s leadership transition is happening at a time when more firms than ever are applying to launch altcoin ETFs, hoping to benefit from the growing interest in cryptocurrency investment products.
Analysts say delays were expected
Industry experts were not surprised by the SEC’s decision to delay these ETF applications. Bloomberg ETF analyst, James Seyffart, noted that this is a common practice for the SEC.
“The SEC just punted on a bunch of altcoin ETF filings including Litecoin, Solana, XRP & DOGE”, Seyffart said in a post on X. He emphasised that these delays are routine and should not be seen as a sign that the ETFs will be rejected.
“It’s standard procedure, and the final deadlines for these ETFs stretch into October”, Seyffart added.
Another ETF analyst, Eric Balchunas, echoed this view, saying that delays are not unusual in the regulatory process.
He pointed out that the SEC’s postponements go beyond just altcoin ETFs, affecting other cryptocurrency-related proposals, such as Ethereum staking ETFs.
“Everything delayed”, Balchunas posted on X, referring to the broad scope of the SEC’s recent actions.
Balchunas also reminded investors that Bitcoin and Ethereum ETFs faced similar delays before eventually receiving approval.
He compared the SEC’s slow pace to a delayed Amtrak train, humorously suggesting that “mechanical issues in DC” were causing the hold-up.
Uncertainty over the SEC’s strategy
The SEC’s approach to altcoin ETFs has been inconsistent, leading to confusion among market participants.
While some applications are being delayed, others are acknowledged and allowed to proceed. For example, on the same day that the SEC postponed multiple altcoin ETFs, it recognised a new ETF application for Dogecoin and Hedera ($HBAR).
This inconsistency has left investors and analysts wondering what criteria the SEC is using to make these decisions.
One possible explanation is that the SEC wants to avoid approving too many altcoin ETFs at once, which could create instability in the crypto market.
Another theory is that internal disagreements within the SEC are affecting the decision-making process. Recently, one SEC Commissioner openly criticised the agency’s shifting stance on cryptocurrency, highlighting internal tensions.
Beyond altcoin ETFs, the SEC has also delayed decisions on other crypto-related financial products. This includes ETFs focused on Ethereum staking and in-kind transactions, showing a broader hesitancy toward approving new cryptocurrency investments.
The SEC’s latest round of ETF delays also comes at a time of significant political and regulatory changes in the US government.
Just days ago, the Biden administration took a major step by signing an executive order to establish a Strategic Bitcoin Reserve and a US Digital Asset Stockpile.
These new policies indicate that the government is paying closer attention to the role of digital assets in the financial system.
Some analysts believe this shift in government focus could impact how the SEC handles ETF approvals in the future.
If the administration pushes for clearer regulations around cryptocurrency, it could speed up the approval process for altcoin ETFs. On the other hand, if the SEC remains cautious, these delays could continue for months.
SEC’s history of delayed approvals
Delays in ETF approvals are nothing new for the SEC. The agency has a history of taking its time to evaluate cryptocurrency-related financial products.
It wasn’t until 2024 that the SEC finally approved spot Bitcoin ETFs in the US, after nearly a decade of waiting.
On 10 January 2024, the SEC granted approval to 11 spot Bitcoin ETF applications from firms including BlackRock, Ark Invest, Grayscale, VanEck, Bitwise, and Fidelity.
These ETFs allow investors to gain exposure to Bitcoin without directly holding the asset, making them an attractive option for those looking to invest in crypto through traditional financial markets.
Before Bitcoin ETFs were approved, many fund managers had predicted strong investor demand.
VanEck estimated that spot Bitcoin ETFs could see inflows exceeding $2.4 billion in their first quarter. Bitwise projected that within five years, US-based Bitcoin ETFs could manage up to $72 billion in assets.
The road to approval for Bitcoin ETFs was not smooth. The first attempt to launch a spot Bitcoin ETF came in 2013 when the Winklevoss twins, Cameron and Tyler Winklevoss, applied for the Winklevoss Bitcoin Trust.
The SEC rejected their application, citing concerns over market manipulation and fraud. Similar concerns delayed further applications for years.
Even when the SEC finally approved Bitcoin ETFs in January 2024, the announcement was surrounded by confusion.
A day before the official approval, the SEC’s official X account was hacked, and a fake post claiming Bitcoin ETF approval was shared. It was later revealed that the SEC’s account lacked two-factor authentication (2FA), allowing the breach to occur.
Although Bitcoin ETFs were initially welcomed by investors, they have not been immune to market volatility. On 25 February 2024, US spot Bitcoin ETFs saw their biggest single-day outflow, with investors withdrawing $1.01 billion in total.
Of the 12 Bitcoin ETFs currently trading in the US, ten recorded outflows, indicating that many investors were reducing their exposure to Bitcoin.
The hardest-hit funds were Fidelity’s Wise Origin Bitcoin Fund (FBTC) and BlackRock’s iShares Bitcoin Trust (IBIT), which lost $344.65 million and $164.3 million, respectively.
Experts believe that the sharp decline in Bitcoin ETF holdings was driven by institutional investors closing their basis trades. This trading strategy involves buying Bitcoin ETFs while shorting Bitcoin futures on the Chicago Mercantile Exchange (CME) to profit from small price differences.
Previously, these spreads were as high as 10%, making it a profitable trade. However, they have now shrunk to just 4%, leading institutional investors to exit their positions.
For now, the SEC’s latest delays mean that investors and issuers will have to wait longer for a decision on altcoin ETFs. With final deadlines extending into late 2024, there is still time for these applications to be reviewed and approved.
However, the regulatory landscape remains uncertain, and the SEC’s approach to cryptocurrency investment products continues to evolve.
