The US Securities and Exchange Commission (SEC) is currently considering the approval of spot exchange-traded funds (ETFs) for digital assets, particularly those with a strong presence in the futures market. A recent filing from the Chicago Board Options Exchange (CBOE) sheds light on the potential approach the agency may take when it comes to crypto ETF approvals in the future.
According to Bloomberg ETF analyst Eric Balchunas, the SEC’s proposed standards indicate that a crucial requirement for a digital asset to be considered for an ETF listing is that it must have traded as a futures contract for at least six months. In this case, Coinbase’s derivatives platform is expected to serve as the reference market for issuers looking to launch digital asset ETFs, given its status as the largest crypto exchange in the US.
Balchunas pointed out that Coinbase offers a wider range of crypto futures compared to the Chicago Mercantile Exchange (CME), making it a more comprehensive benchmark for the SEC to consider. Additionally, his colleague James Seyffart mentioned that this framework would allow the Commodity Futures Trading Commission (CFTC) to determine which tokens qualify for futures trading, thus potentially making them eligible for spot ETF packaging.
Seyffart highlighted that the proposed rule does not currently include requirements related to market cap, liquidity, or float percentage. Instead, the focus is primarily on the futures market, at least until a spot crypto exchange joins the Intermarket Surveillance Group (ISG). Presently, Coinbase derivatives is the only member from a pure crypto standpoint.
In terms of which crypto assets may meet the criteria for ETF listing under this rule, primary tokens with established futures activity such as Bitcoin, Ethereum, Litecoin, XRP, and others could be eligible. These assets have maintained consistent trading activity on Coinbase’s derivatives exchange for over six months. However, newer or more speculative tokens without established futures markets may need to follow a different path, such as utilizing the Investment Company Act of 1940 for ETF packaging.
One example cited by Balchunas is the REX Shares Solana ETF, which follows a more complex route known as the “40 Act structure” for listing. While this alternative structure allows for ETF launch without a specific filing, most issuers prefer the Securities Act of 1933 for spot ETFs due to its simplified compliance and direct exposure benefits.
As the SEC continues to evaluate the potential approval of crypto ETFs, the industry awaits further developments on how digital assets with futures market presence may be integrated into the ETF landscape. Stay tuned for more updates on this evolving regulatory landscape.