Crypto ETFs Bypass Government Shutdown Using SEC Filing Loophole

TLDR

• The October government shutdown froze SEC decision-making on crypto ETF applications, but issuers found a workaround using automatic approval rules
• Four crypto ETFs from Canary Capital, Bitwise, and Grayscale launched this week without active SEC approval by using “no delaying amendment” language in their S-1 filings
• Fidelity filed for a spot Solana ETF and Canary Capital filed for an XRP ETF on Thursday, which could go live by November 13 if the SEC doesn’t intervene
• The Federal Reserve injected $29.4 billion into the banking system through overnight repo operations to ease liquidity stress and lower repo rates
• The Fed’s liquidity injection is a short-term measure to prevent funding market freezes and is not the same as quantitative easing

October was supposed to mark the arrival of multiple crypto ETFs in U.S. markets. The Securities and Exchange Commission had several deadlines lined up to approve or deny spot crypto ETF applications throughout the month. But when the U.S. government shut down, the SEC stopped processing decisions and those deadlines became meaningless.

ETF issuers didn’t wait around. Instead, they found a procedural workaround that allowed them to launch products without waiting for the SEC to reopen. Four crypto ETFs started trading this week using this method.

Canary Capital launched two funds, while Bitwise and Grayscale each brought one to market. They all used the same approach: filing updated S-1 registration statements with “no delaying amendment” language. Under U.S. securities law, these filings automatically become effective after 20 days unless the SEC issues a stay or requests changes.

The SEC didn’t take any action to stop them. That silence allowed the ETFs to go live by default. Now other issuers are following the same playbook.

On Thursday, Fidelity submitted an updated S-1 for its spot Solana ETF. Canary Capital filed for its XRP ETF the same day. If the SEC continues its hands-off approach, the first XRP fund could start trading on November 13.

Limits to the Workaround

The strategy has limits. The SEC has already reviewed filings for Solana, HBAR, and Litecoin ETFs. But the agency hasn’t provided much feedback on XRP applications yet.

That lack of engagement could prompt the SEC to block the automatic approval process for XRP funds. James Seyffart, an ETF analyst at Bloomberg Intelligence, said some funds might not be able to launch without the government reopening. He expects many funds to launch next month regardless of the shutdown status, but not all of them.

The situation marks a shift in how crypto ETFs reach U.S. markets. Issuers are no longer waiting for formal SEC approval. They’re using procedural mechanics to move forward.

Fed Liquidity Injection

While crypto ETFs navigate regulatory hurdles, the Federal Reserve took action to support financial markets. The Fed injected $29.4 billion into the banking system on Friday through overnight repo operations. This was the largest such operation since the 2020 coronavirus pandemic.

The Fed used its standing repo facility to temporarily boost cash available to primary dealers and banks. The goal was to ease liquidity stress that has affected markets in recent weeks. Bank reserves had fallen to $2.8 trillion, causing repo rates to rise.

The repo market involves short-term loans between parties. One side has idle cash and wants to earn yield. The other side needs a cash loan and offers collateral like U.S. Treasury securities.

When bank reserves fall too low, lendable cash becomes scarce. More borrowers compete for less cash, pushing up repo rates. The Fed stepped in to prevent this from causing problems in short-term funding markets.

The liquidity crunch came from two sources. The Fed’s balance sheet runoff, called quantitative tightening, withdrew cash from the system. The Treasury also built up its checking account at the Fed, removing more cash from circulation.

The Fed’s $29.4 billion injection works as a short-term fix. It temporarily expands bank reserves, lowers short-term rates, and eases borrowing pressures. This helps prevent liquidity crises that could damage financial markets.

The move supports risk assets like bitcoin, which traders view as plays on fiat liquidity. But the Fed’s action doesn’t signal a shift to quantitative easing. QE involves direct asset purchases by the Fed over months or years to increase overall liquidity.

Friday’s operation represents a reversible, short-term liquidity tool. Andy Constan, CEO of Damped Spring Advisors, said the situation will resolve itself. He noted that if reserves are truly scarce system-wide, the Fed would need more aggressive action.

Fidelity and Canary Capital filed updated S-1 forms on Thursday for Solana and XRP ETFs that could launch by November 13 without SEC intervention.

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