Crypto: Grayscale and a16z Turn Up the Pressure on the SEC Over New ETFs

Grayscale, a16z and the Crypto Council for Innovation ask the SEC not to automatically tighten the rules for the new generation of ETFs. The crypto sector especially refuses that Bitcoin, Ethereum or other digital assets be placed in the same category as private asset funds, leveraged strategies or event contracts. The three organizations want faster reviews tailored to the real risk of each product.

Crypto refuses a single rule for all ETFs

The SEC has been working on this file for several weeks. The regulator opened at the end of June a consultation on new ETFs and digital assets. Grayscale and a16z have now responded.

The common point between their letters is quite clear: a crypto ETF should not automatically face new constraints simply because the SEC considers it “novel,” that is, new or unusual. The category studied by the regulator is very broad.

It can include products exposed to crypto, private assets, commodities, a single stock, highly leveraged strategies, or prediction markets. a16z believes these products do not present the same liquidity, valuation, or investor protection issues.

The company also recalls that crypto ETFs and ETPs now have a more developed infrastructure. Bitcoin and Ethereum have already set precedents. Solana also has products listed in the United States. For a16z, starting almost from scratch for each new category therefore does not make much sense.

Grayscale and a16z propose two different paths

However, the two groups do not agree on everything. a16z wants to keep the current definition of an “investment company” provided by the Investment Company Act of 1940. A product that mainly holds assets that are not financial securities should not automatically fall into this category.

Grayscale defends a similar position. The manager notably refuses that the SEC impose new portfolio conditions, minimum quotas of financial securities, or additional restrictions on crypto products that already have a compliance history. The matter is becoming concrete for Grayscale. The group also removed three Cardano, Hedera, and Polkadot ETF applications in August.

Another problem: timing. Today, an issuer can finish part of the registration of its fund while the authorization for listing by the exchange is still pending. a16z wants to better coordinate these two procedures. The company proposes standardized timelines, shorter reviews, and, when possible, simultaneous processing of applications.

Grayscale puts forward another idea. The group wants an optional and confidential procedure before the public filing, with a defined response time for SEC staff. The CCI also supports this mechanism. It notably mentions the problem of files copied very quickly after their publication, a phenomenon that the use of AI could accelerate even more.

The next wave of crypto ETFs is happening now

The market concerned is already large. Assets held in US ETFs exceed 12 trillion dollars according to figures cited in the responses addressed to the SEC. More than 4,600 funds are now available.

Crypto represents only part of this market. But it is advancing quickly. US spot Bitcoin ETFs recently approached 100 billion dollars in assets. Ethereum and Solana also have their own products, while managers are testing assets increasingly distant from the two large cryptos.

One detail still divides the players. a16z would like to reserve the term “ETF” for funds registered under the Investment Company Act. Other products would be clearly identified as ETPs. Grayscale opposes this. For the manager, the term ETF can also describe a listed product with an arbitrage mechanism and a transparent price, regardless of its precise legal framework.

The CCI prefers clearer information on the regulatory status of each product rather than a complete change of names. The SEC must now decide between investor protection, speed of procedures, and the arrival of much more varied crypto products. As for the candidates, they are no longer waiting for Bitcoin or Ethereum: Grayscale has, for example, filed an application to launch a BNB ETF on Nasdaq.