Crypto Industry Warns SEC Against Blanket Novel ETF Restrictions

Crypto industry participants have urged the US Securities and Exchange Commission (SEC) to avoid blanket restrictions on 'novel' exchange-traded funds (ETFs).

A letter signed by venture capital firm a16z, digital asset investment manager Grayscale, and the Crypto Council for Innovation (CCI) argues that novel products should be evaluated based on their individual risk parameters.

The SEC had opened a 60-day public-comment period on its request for feedback concerning novel ETFs, which closed on August 31. The crypto industry stakeholders opposed changing existing investment-company classifications in ways that could automatically sweep products holding non-securities into the Investment Company Act framework.

a16z argued that crypto-based ETPs now benefit from more developed market infrastructure and therefore should not be grouped with products holding private assets or using other novel strategies. Grayscale similarly argued that digital asset products with established compliance and disclosure records should not face new portfolio conditions or disclosure regimes merely because they are characterized as novel.

The commenters broadly opposed categorical regulatory changes that could impose additional requirements or delay product launches. However, their recommendations differed on classification, approval procedures, and terminology. CCI called for comparable regulatory efficiencies across ETFs and non-ETF ETPs while preserving existing investor protections.