U.S. Crypto ETFs Receive Regulatory “Green Light,” Market May Welcome New Listing Wave
On one hand, the U.S. SEC has officially allowed the physical creation and redemption mechanism for crypto ETFs, greatly enhancing trading efficiency and market liquidity; on the other hand, general crypto ETP listing standards are imminent, opening a fast track for crypto assets to enter the ETF market.
SEC Officially Approves Physical Creation and Redemption for Crypto ETPs
Crypto regulation is undergoing a significant turning point. On July 30, the SEC cast an important vote, allowing authorized participants to conduct physical creation and redemption of crypto ETPs.
Crypto ETPs and ETFs are financial instruments that list crypto assets (such as Bitcoin and Ethereum) in a securitized form on traditional exchanges, aiming to provide investors with a convenient and compliant investment channel for crypto assets. Both allow investors to trade like stocks without directly engaging with crypto wallets or private key management, offering higher liquidity and transparency, and must be approved by the financial regulatory authorities of their respective countries or regions.
However, there are significant differences in structure and regulation between the two. Crypto ETFs belong to a fund structure, usually being physically-backed products, which have stricter information disclosure requirements and higher asset safety, making them harder to approve in strictly regulated markets (like the U.S.); while crypto ETPs are a broader concept and do not necessarily have to be funds, their structure may carry issuer credit risk, but are easier to launch in markets like Europe with more flexible forms.
As we know, Bitcoin and Ethereum spot ETFs adopt a cash creation and redemption mechanism. In this model, authorized participants must first deliver cash to the ETF issuer, which then purchases equivalent Bitcoin or Ethereum in the spot market to support the newly issued ETF shares; the operation is reversed during redemption.
However, this indirect operation model leads to high trading costs, settlement delays, and significant market slippage risks, limiting product attractiveness and primary market liquidity.
With the opening of the physical redemption mechanism, authorized participants can now directly deliver Bitcoin or Ethereum to the ETF issuer to create or redeem ETF shares. The further connection between on-chain assets and traditional financial products not only enhances operational efficiency but also opens new paths for the compliant liquidity of crypto assets, potentially attracting more ETF participants.
“This marks the beginning of a new chapter in SEC regulation. As a key goal during my time as ###, I am committed to establishing a regulatory framework for the crypto market that aligns with the actual market situation. This approval will lower product costs, improve operational efficiency, and ultimately benefit investors. It will further promote the construction of a rational and clear crypto regulatory system,” stated SEC ### Paul S. Atkins.
Bloomberg analyst James Seyffart believes that the physical creation/redemption mechanism for Bitcoin and Ethereum spot ETFs has been approved. It is expected that upcoming approvals for altcoin ETFs will likely also allow physical creation/redemption from the outset. This is another step in the right direction.
Furthermore, the SEC has also approved other proposals to promote the development of the crypto asset market, including the listing application for hybrid spot Bitcoin and Ethereum ETPs, specific Bitcoin spot ETP options trading, flexible exchange (FLEX) options trading, and increasing the position limit for specific Bitcoin ETP options to 250,000 contracts, enriching market tools and enhancing flexibility.
Streamlining Listing Channels, General Standards for Crypto ETPs Expected Within 60 Days
In addition to making a critical step in the operation model of crypto ETPs, its listing channels have also seen significant optimization.
Recently, Cboe BZX submitted a milestone rule amendment proposal to the U.S. SEC. The core of this proposal is a systematic revision of Rule 14.11(e)(4) to establish a general listing standard for Commodity-Based Trust Shares (CBTS).
As early as 2013, BZX established a listing system for CBTS based on Rule 14.11(e), but this rule was essentially designed for traditional commodity ETFs, primarily targeting trust structures supported by single commodities (like gold or oil). As the market evolved, with the rise of crypto assets and the emergence of composite portfolios, the drawbacks of the original rule gradually became apparent, including limitations on asset types, cumbersome approval processes, and low innovation efficiency.
Bitcoin and Ethereum spot ETFs are typical cases, having undergone years of modifications and negotiations before finally receiving approval. In fact, under existing rules, each crypto ETF must submit a separate 19b-4 application document, with the approval cycle lasting up to 240 days. This model consumes regulatory resources and undermines market confidence.
The core logic of the new proposal is to institutionalize and standardize the “one asset, one review” ETF listing process, allowing any CBTS product that meets specific conditions to be listed directly.
This revision comprehensively upgrades the definition of CBTS, breaking the original limitation of single commodities. The new rule clarifies that trust shares can be issued by trusts, limited liability companies, or other similar entities, significantly enhancing flexibility. The asset scope is also allowed to hold multiple commodities (such as gold, oil, Bitcoin, Ethereum, etc.), commodity underlying assets (including futures, options, swaps, etc.), securities, cash, and cash equivalents (such as U.S. government bonds, certificates of deposit).
At the same time, the proposal clarifies three direct listing paths for underlying assets: (1) ISG market trading: commodities traded on markets of members of the Intermarket Surveillance Group (ISG), allowing exchanges to access trading information and ensure regulatory visibility; (2) DCM (Coinbase Derivatives Exchange) trading for 6 months: futures contracts based on the commodity have been continuously traded for at least 6 months in a CFTC-regulated designated contract market (such as CME) with monitoring agreements; (3) ETF Net Asset Value (NAV) accounting for 40%: the commodity accounts for over 40% of the NAV in an already listed ETF, and that ETF is traded on a national securities exchange. These three pathways effectively anchor asset liquidity, compliance, and regulatory visibility, forming a unified and transparent “listing equates to admission” mechanism, avoiding redundant reviews and regulatory arbitrage.
Additionally, the proposal strengthens market transparency and investor protection requirements, stipulating that CBTS issuers must publicly disclose core information daily for free on their websites, including daily positions, NAV and market prices, historical data, and trading volume, significantly enhancing the readability and verifiability of ETF products, helping investors reasonably assess the fair value and trading efficiency of ETFs.
Notably, the proposal supports crypto staking mechanisms. According to Rule 14.11(e)(4)(G), if the proportion of redeemable assets in the ETF is less than 85%, a liquidity risk management policy and procedures must be established; if assets are staked, isolated, re-staked, restricted, or otherwise limited in liquidity, resulting in an inability to redeem on T+1, it is considered “not redeemable at any time”; if staked assets exceed 15% of total assets, a special liquidity management mechanism must be activated. This means that as long as the ETF can ensure adequate liquidity or establish a robust staking risk control system, the staking mechanism can be legally introduced into the structure of crypto ETF products, providing more possibilities for product design and yield models.
Currently, the proposal has not yet been finalized. According to Greg Xethalis, Chief Legal Counsel at Multicoin Capital, this regulation still needs to undergo public comments and review, with the comment period potentially ending within 21 days after publication in the Federal Register, which means that the rule is likely to be finalized in less than 60 days. Once approved, it will open an efficient and transparent listing channel for commodity-type ETPs, including crypto assets.
New Rules on the Horizon, Who Are the Biggest Winners?
With the general listing standards for crypto ETPs imminent, Coinbase, the CFTC, and altcoin ETFs may become the biggest beneficiaries.
As mentioned earlier, under the new regulatory framework, as long as there is more than 6 months of compliant trading records for a certain asset’s futures in the Coinbase DCM contract market, it qualifies for general listing. This means Coinbase may become the “certification center” for altcoins to access ETFs. Moreover, since the new proposal supports staking mechanisms, relevant institutions will also benefit, and Coinbase Custody is currently a recognized mainstream custodian and staking service provider in the U.S., as well as a custodian for many Bitcoin and Ethereum spot ETFs.
The proposal clearly states that the issuing entities of CBTS products are not registered as investment companies under the Investment Company Act of 1940, but must comply with the regulatory framework of the Commodity Futures Trading Commission (CFTC). This means that which crypto assets can enter ETFs in the future, will be controlled by the CFTC regarding whether their futures can be listed, thereby indirectly impacting ETF admission qualifications. The regulatory trend is clear: the product path for crypto ETFs is determined by the SEC, while asset qualifications are pre-assessed by the CFTC.
At the same time, the new rules will also promote the rapid approval and listing of more altcoin ETF products. According to Bloomberg senior ETF analyst Eric Balchunas, based on the standards, cryptocurrencies with over 6 months of futures trading tracking records in the Coinbase derivatives exchange will be approved for inclusion in ETPs. Currently, there are about a dozen crypto assets that meet the criteria, aligning with market expectations of over 85% approval probability for mainstream cryptocurrencies. Regarding the specific approval timeline, Balchunas indicated it could be in September or October this year.
Greg Xethalis mentioned that the New York Stock Exchange and Nasdaq are also expected to follow suit soon. There are pending ETP applications, including for Solana and XRP. The SEC may choose to take action on these ETP 19b-4 applications before the October 10 deadline for Solana or the later deadline for XRP, or they may incorporate them into the new General Listing Standards (GLS) process for approval. Both are expected to launch in the fourth quarter, including physical delivery and SOL staking returns.
This article is collaboratively reproduced from PANews.