The U.S. Securities and Exchange Commission (SEC) has postponed its decision regarding Bitwise’s proposal to convert its crypto index fund into an exchange-traded fund (ETF). The regulatory body has set a new deadline of March 3, 2025, at which point it will either approve, deny, or initiate further proceedings to review the application.
According to the official announcement, the Commission believes that designating a longer period to take action on the proposed rule change is appropriate. This allows sufficient time to evaluate the proposal and address the issues raised within it.
This type of delay is permitted under SEC regulations, as the Commission holds the authority to extend its review window. The goal is to ensure a thorough assessment of the potential implications tied to approving such products under the Securities Exchange Act.
Public records indicate that NYSE Arca initially filed the application with the SEC on November 15, 2024. The SEC published the proposed rule change in the Federal Register on December 2, marking the beginning of the public comment period.
Background on Bitwise’s Initiative and the SEC’s Reasoning
The Bitwise 10 Crypto Index Fund (BITW), with a current valuation of $1.4 billion, is traded on the OTCQX Best Market. Launched in 2017, the fund tracks the performance of the top ten crypto assets by market capitalization, including Bitcoin, Ethereum, Solana, and XRP.
The fund’s portfolio is heavily weighted toward Bitcoin (75.14%) and Ethereum (16.42%). It also offers exposure to other major digital assets, such as Solana (SOL), XRP, Cardano (ADA), Avalanche (AVAX), Chainlink (LINK), Bitcoin Cash (BCH), Polkadot (DOT), and Uniswap (UNI).
Bitwise CEO Hunter Horsley has emphasized the benefits of converting the fund into an ETF. Key advantages include improved operational efficiency, stronger investor protections, and closer alignment with the fund’s net asset value (NAV).
The SEC’s decision to delay aligns with its cautious regulatory stance toward cryptocurrency-related investment products. The Commission remains focused on understanding the broader implications of introducing a wide-ranging crypto index ETF. Notably, the SEC had not received any public comments on the proposed rule change at the time of the delay.
The SEC has previously expressed concerns about market manipulation, liquidity risks, and investor protection in the context of crypto ETFs. By extending the review period, the agency aims to address these issues comprehensively before reaching a final decision.
Matt Hougan, Bitwise’s Chief Investment Officer, highlighted the fund’s pioneering role in providing index-based exposure to the crypto industry. He stated, “Since its inception, BITW has aimed to offer investors a diversified opportunity to participate in the groundbreaking potential of the cryptocurrency market.”
Broader Market Context and Recent ETF Performance
This delay comes at a time when U.S. spot Bitcoin ETFs have experienced significant outflows. Over a recent four-day period, these funds saw a combined outflow of $1.2 billion. The 12 spot ETFs collectively lost $209.82 million in assets, with BlackRock’s IBIT fund recording the largest outflow at $219.48 million.
This marked the second-largest negative flow since the funds launched a year ago, only surpassed by a record $332 million outflow earlier in the year. Bitwise’s own BITB ETF was the second most affected, with outflows of $8.93 million.
Analyst James Seyffart suggested that the SEC may also delay a similar request from Grayscale to convert its hybrid crypto fund into an ETF, which has a deadline of February 2.
In November, the SEC postponed decisions on whether to approve spot Ethereum ETF options from Bitwise and Grayscale. However, following initial delays, it approved the first combined Bitcoin and Ethereum ETFs from Hashdex and Franklin Templeton in December.
In other filing activity, Bitwise submitted an application for an XRP ETF in October. Meanwhile, Osprey Funds recently announced its intention to file a registration statement with the SEC to convert its Osprey Bitcoin Trust into an ETF.
It is worth noting that in August of last year, Osprey Funds entered into an agreement with Bitwise Asset Management to acquire all assets of the OBTC fund through its spot Bitcoin ETF. However, Osprey terminated the agreement in a simultaneous press release, citing a failure to receive all necessary regulatory approvals by December 31.
The company stated, “Osprey intends to provide investors with updates on future strategic alternatives for OBTC.”
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Frequently Asked Questions
What is the Bitwise 10 Crypto Index Fund?
The Bitwise 10 Crypto Index Fund is an investment product that tracks the performance of the top ten cryptocurrencies by market capitalization. It offers diversified exposure to major digital assets, including Bitcoin and Ethereum, and is designed for investors seeking broad market access.
Why did the SEC delay its decision on the Bitwise ETF?
The SEC extended its review period to thoroughly evaluate the proposed rule change, assess potential risks, and consider broader implications related to market stability and investor protection. Such delays are common for complex financial products involving digital assets.
How does converting to an ETF benefit investors?
Conversion to an ETF can provide enhanced liquidity, lower fees, improved transparency, and better alignment with the fund’s net asset value. It also allows for intraday trading and may attract a broader base of institutional and retail investors.
What are the SEC’s main concerns with crypto ETFs?
The SEC is primarily concerned with market manipulation, liquidity adequacy, custody solutions, and investor protection. These factors are critical in ensuring that ETFs operate fairly and efficiently within regulatory frameworks.
Are there already approved Bitcoin or Ethereum ETFs?
Yes, the SEC has approved several spot Bitcoin ETFs and combined Bitcoin-Ethereum ETFs. However, approvals for funds tracking a broader basket of cryptocurrencies, like the Bitwise proposal, are still under review.
What happens if the SEC approves the Bitwise ETF?
Approval would allow Bitwise to list its fund as a fully regulated ETF on national exchanges, potentially increasing its accessibility, liquidity, and attractiveness to a wider range of investors.