SEC Greenlights "Fast-Track" for Digital Asset ETPs; Crenshaw Cries Foul
The U.S. Securities and Exchange Commission (SEC) has approved a landmark rule change that will allow exchanges to adopt generic listing standards for certain exchange-traded products (ETPs), including those holding digital assets. This move effectively creates a "fast-track" for new digital asset ETPs to come to market without the traditional, individualized SEC review process, which has been a major hurdle for the industry.
While undoubtedly hailed as a significant regulatory breakthrough by those in the digital asset space, the decision has drawn sharp criticism from no less than SEC Commissioner Caroline Crenshaw herself. Commissioner Crenshaw, in a dissenting statement, expressed concern that the SEC is "passing the buck" on its responsibility to protect investors by fast-tracking what she considers to be nascent and unproven products.
A Breakthrough Years in the Making
This new rule represents a major inflection point for digital assets, which have historically faced a long and arduous path to gaining regulatory approval in the U.S. The SEC has a long history of delaying or denying applications for digital asset ETPs, particularly those holding spot cryptocurrencies. For example, the first spot Bitcoin ETF application was filed in 2013, but it took until January 2024, and a landmark court ruling, for the first one to be approved. Similarly, approvals for other spot crypto ETFs were also subject to multiple delays, often taking the maximum 240 days for a decision.
The generic listing standard is a game-changer because it mirrors a framework that has been successful for other asset classes. In 2019, the SEC adopted a similar rule, known as the "ETF Rule," which dramatically streamlined the approval process for traditional stock and bond ETFs. This new digital asset ETP rule is expected to have a similar effect, allowing for a wave of new products to enter the market more quickly and efficiently.
Who Wins?
This new framework is poised to benefit a wide range of digital assets beyond just Bitcoin and Ethereum, which were the first to receive spot ETP approvals in 2024. Firms that have filed for ETPs tied to cryptocurrencies such as Solana (SOL), XRP (XRP), Dogecoin (DOGE), and Cardano (ADA) are now in a prime position to see their products listed.
The fast-track process will significantly reduce the time it takes for these products to go from filing to trading. Instead of the lengthy, bespoke review that could take months or even years, qualifying digital asset ETPs will now be able to list if they meet the new generic standards. This change is expected to open the door to a more diverse crypto ETP market, including potential index funds and baskets of cryptocurrencies.
ETPs ≠ ETFs
Despite the excitement, Commissioner Crenshaw's statement highlights a significant concern: the potential for investor confusion. She points out that while all ETFs are ETPs, not all ETPs are ETFs. ETPs approved under the new framework are governed by the Securities Act of 1933, which offers fewer investor protections than the Investment Company Act of 1940 that governs ETFs.
The 1940 Act provides protections related to independent board oversight, conflicts of interest, and regular SEC examinations, which are not required for ETPs under the 1933 Act. Crenshaw warns that investors may incorrectly assume they have the same level of protection for these new digital asset ETPs as they do for traditional ETFs, which she believes is "legally incorrect and practically dangerous."
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