Crypto Industry Urges SEC to Assess 'Novel' ETFs Individually

The US Securities and Exchange Commission (SEC) has faced criticism from prominent crypto industry players who urge it to avoid treating 'novel' exchange-traded products as a single, one-size-fits-all regulatory category. The industry stakeholders, including venture capital firm a16z, digital asset investment manager Grayscale, and the Crypto Council for Innovation (CCI), submitted comments during the 60-day public comment period that ended on August 31.

The commenters argued that the SEC should assess each proposal based on its specific risk profile and product mechanics, rather than applying blanket restrictions. They also opposed changes to investment-company classifications that could automatically pull non-securities holdings into the Investment Company Act framework.

a16z emphasized that crypto-focused exchange-traded products have benefited from more mature market infrastructure, while Grayscale argued that digital asset products with established compliance and disclosure records should not be forced into new portfolio conditions or different disclosure regimes solely because they are labeled 'novel'. CCI called for comparable operational processes across ETFs and non-ETF exchange-traded products.

The industry stakeholders appear to be treating classification as the linchpin for regulatory predictability. If the SEC were to broaden classification triggers in a way that turns certain holdings into a default 'investment company' matter, it could impose requirements that were not designed for the specific structure of many digital asset exchange-traded offerings.