Why the SEC is stalling new crypto ETFs even after greenlighting them

The US Securities and Exchange Commission (SEC) has issued a stay order on Bitwise’s bid to convert its over-the-counter (OTC) crypto index fund into a spot exchange-traded fund (ETF).

The decision came just hours after the SEC’s Division of Trading and Markets granted accelerated approval for the application on July 22.

The stay, issued by the SEC’s Office of the Secretary, temporarily suspends the fund’s transition to ETF status pending further review. If allowed to proceed, the Bitwise 10 Crypto Index Fund (BITW) would trade on NYSE Arca under the amended Rule 8.500-E, which governs the listing of Trust Units.

Bitwise first filed its ETF conversion request in November 2024. The fund, launched in 2017, holds approximately $1.68 billion in assets under management.

As of July 22, Bitcoin accounts for 73.8% of the portfolio, followed by Ethereum at 13.8% and XRP at 6.5%. Other constituents include Solana, Cardano, Sui, Chainlink, Avalanche, Litecoin, and Polkadot in smaller proportions.

SEC’s pattern of post-approval delays

The SEC’s latest move echoes a similar pattern observed earlier this month.

On that occasion, the agency approved Grayscale’s request to convert its Digital Large Cap Fund (GDLC) into an ETF, only to issue a stay the following day. The GDLC also holds significant digital assets like Bitcoin and Ethereum.

Grayscale responded by challenging the stay, arguing that the approval was automatic due to the expiration of the SEC’s statutory review period. The firm claimed the Commission lacked the authority to reverse a decision effectively passed into law.

Bloomberg ETF analyst James Seyffart suggested the SEC might be intentionally delaying these approvals to finalize a broader regulatory framework.

According to him:

“[This] might be the SEC’s way of stalling these things from becoming ETFs before they come up with a digital assets ETF framework. AKA some sort of generic listing standard for what digital assets are allowed in an ETF wrapper and what criteria they’ll use.”

According to reports, the framework would allow issuers to no longer need to file individual rule-change requests if their tokens meet certain criteria. Instead, sponsors would register with Form S-1, undergo a 75-day review, and list the product upon clearance.

Meanwhile, finance attorney Scott Johnsson offered a different interpretation of the repeated delays.

According to him, the financial regulator could be deliberately using the delegated authority to delay final approvals, potentially to avoid penalizing applicants like Grayscale or to circumvent the 240-day statutory review period.

Nevertheless, the lawyer noted that these issues should not occur under SEC Paul Atkins’s pro-crypto regime.

Considering this, Johnsson believes the uncertainty could be resolved before the October deadline, when several high-profile ETF applications are expected to face final decisions.

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