The U.S. financial regulatory body, the SEC, may be on the verge of greenlighting spot ETFs for cryptocurrencies that demonstrate significant activity in the futures market.
Insights into the SEC’s potential stance on approving crypto ETFs have emerged from a recent document filed by the Chicago Board Options Exchange (CBOE), offering possible hints at their future approach.
SEC’s Potential Criteria for Crypto ETF Approval
According to Eric Balchunas, a Bloomberg ETF analyst, who highlighted on July 30, that the SEC seems to be considering a pivotal requirement: a digital asset must have a track record of at least half a year trading as a futures contract to be considered.
Balchunas suggests that Coinbase’s derivatives platform could become the primary benchmark marketplace for prospective ETF providers. Coinbase stands as the United States’ largest digital currency trading venue.
He further elaborated that Coinbase offers a wider range of crypto futures listings compared to the CME, resulting in greater coverage. Given Coinbase’s inclusion of both native and CME-based futures, the SEC might perceive it as a more thorough and representative standard.
James Seyffart, Balchunas’ colleague, pointed out that if this framework is adopted, the Commodity Futures Trading Commission (CFTC) would effectively determine which tokens meet the requirements. Assets cleared for futures trading might then automatically be eligible for inclusion in spot ETFs.
Seyffart emphasized:
“There’s no mention whatsoever of market capitalization or size thresholds. No underlying market liquidity requirements. No Float percentage stipulations. Nothing of that nature. It’s all focused on futures markets at this stage. At least, until a spot crypto exchange joins the ISG. Currently, ‘Coinbase derivatives’ is the sole member representing the pure crypto industry.”
Which Cryptocurrencies Could Qualify?
Should the rule become final, ETF issuers could list spot products for established cryptocurrencies boasting a history of futures trading activity.
These could include Bitcoin, Ethereum, Litecoin, XRP, Dogecoin, Cardano, Solana, Shiba Inu, Polkadot, Avalanche, Chainlink, Stellar, Hedera, and Bitcoin Cash. Each has sustained futures trading for more than six months on Coinbase’s derivatives platform.
However, newer or more speculative digital currencies, such as Bonk and Trump Coin, lacking established futures markets, would need to pursue alternative pathways.
These assets might be packaged into ETFs via the Investment Company Act of 1940 – a stricter and more intricate mechanism known as the “40 Act structure.” Balchunas cited the REX Shares Solana ETF as a potential blueprint for such assets.
This alternative structure enables product launches without requiring a 19b-4 filing. Nevertheless, the Securities Act of 1933 is typically preferred by most issuers for spot ETFs, offering streamlined compliance and more direct exposure.