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The U.S. cryptocurrency ETF is ushering in a regulatory “green light,” potentially leading to a new wave of listing enthusiasm in the market. On one hand, the U.S. SEC has officially approved the physical subscription and redemption mechanisms for cryptocurrency ETFs, significantly enhancing trading efficiency and market liquidity; on the other hand, universal cryptocurrency ETP listing standards are emerging, which will open a fast track for crypto assets to enter the ETF market.
SEC Officially Approves Physical Redemption for Crypto ETPs
Cryptocurrency regulation is at a pivotal turning point. On July 30, the SEC cast an important vote, allowing authorized participants to conduct physical subscriptions and redemptions for cryptocurrency ETPs.
Both cryptocurrency ETPs and ETFs are financial instruments that list crypto assets (such as Bitcoin, Ethereum, etc.) in a securitized form on traditional stock exchanges, aiming to provide investors with convenient and compliant investment channels for crypto assets. Both allow investors to trade like buying and selling stocks, without direct interaction with cryptocurrency wallets or private key management, offering high liquidity and transparency, and they must be approved by the financial regulatory authorities of the respective countries or regions.
However, there are significant structural and regulatory differences between the two. Cryptocurrency ETFs belong to a fund structure, typically physical-backed products, with stricter information disclosure requirements and higher asset safety, making it more challenging to obtain approval in strictly regulated markets (like the U.S.); cryptocurrency ETPs, on the other hand, is a broader concept that is not necessarily a fund, and its structure may carry issuer credit risk, but is easier to launch and more flexible in markets such as Europe.
It is well known that Bitcoin and Ethereum spot ETFs use a cash redemption mechanism. In this model, authorized participants must first deliver cash to the ETF issuer, which then purchases an equivalent amount of Bitcoin or Ethereum in the spot market to support the newly issued ETF shares; the redemption process operates in reverse.
However, this indirect operational model results in high trading costs, settlement delays, and significant market slippage risks, limiting product appeal 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 establish or redeem ETF shares. The further connection between on-chain assets and traditional financial products not only enhances operational efficiency but also opens new pathways 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 tenure as ###, I am committed to establishing a regulatory framework for the crypto market that fits the actual market situation. This approval will reduce product costs, enhance operational efficiency, and ultimately benefit investors. It will further promote the construction of a rational and transparent crypto regulatory system,” stated SEC ### Paul S. Atkins.
Bloomberg analyst James Seyffart believes that the approval of the physical subscription/redemption mechanism for Bitcoin and Ethereum spot ETFs has been achieved. It is expected that the soon-to-be-approved altcoin ETFs will likely also allow for physical redemption from the beginning. This is another step in the right direction.
Additionally, the SEC has approved other proposals to facilitate the development of the cryptocurrency market, including listings for hybrid spot Bitcoin and Ethereum ETPs, specific Bitcoin spot ETP options trading, flexible exchange (FLEX) options trading, as well as increasing the position limit for specific Bitcoin ETP options to 250,000 contracts, enriching market tools and enhancing flexibility.
Streamlining the Listing Process, Universal Standards for Crypto ETPs Expected Within 60 Days
In addition to making a critical step forward in the operational model of cryptocurrency ETPs, the listing process has 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 amendment to Rule 14.11(e)(4) to establish universal listing standards for Commodity-Based Trust Shares (CBTS).
As early as 2013, BZX established a listing system for CBTS based on Rule 14.11(e), but the original rule was essentially designed for traditional commodity ETFs, primarily targeting trust structures supported by single commodities (such as gold or oil). As the market has evolved, such as the rise of crypto assets and the emergence of composite portfolios, the shortcomings of the original rules have gradually surfaced, including limited asset types, cumbersome approval processes, and low innovation efficiency.
Bitcoin and Ethereum spot ETFs are typical examples, having undergone years of modifications and negotiations before finally receiving approval. In fact, under the existing rules, each cryptocurrency ETF must submit a separate 19b-4 application document, with the approval cycle possibly stretching 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 coin, one review” ETF listing process, allowing any CBTS product that meets specific conditions to list directly.
This revision comprehensively upgrades the definition of CBTS, breaking the previous limitation of single commodities. The new regulations clarify that trust shares can be issued by trusts, limited liability companies, or other similar entities, significantly increasing flexibility. The asset range is also permitted to hold multiple commodities (such as gold, oil, Bitcoin, Ethereum, etc.), commodity-based 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 specifies three pathways for directly listing underlying assets: (1) ISG market trading: commodities traded on markets of members of the Intermarket Surveillance Group (ISG) can provide trade information to ensure regulatory visibility; (2) DCM (Coinbase Derivatives Exchange) trading for 6 months: futures contracts based on the commodity must have been continuously traded for at least 6 months on CFTC-regulated designated contract markets (such as CME), along with monitoring agreements; (3) ETF net asset value accounting for 40%: the commodity accounts for more than 40% of the net asset value (NAV) in a listed ETF, and that ETF is traded on a national securities exchange. These three pathways effectively anchor the asset’s liquidity, compliance, and regulatory visibility, forming a unified and transparent “listing equals access” mechanism, avoiding repeated reviews and regulatory arbitrage.
Furthermore, the proposal strengthens market transparency and investor protection requirements, stipulating that CBTS issuers must disclose the following core information daily and free of charge on public websites, including daily positions, net asset value (NAV) and market prices, historical data, and trading volume, significantly enhancing the readability and verifiability of ETF products, which helps investors reasonably assess the fair value and trading efficiency of ETFs.
Notably, the proposal supports the cryptocurrency staking mechanism. According to Rule 14.11(e)(4)(G), if the proportion of redeemable assets in the ETF falls below 85%, liquidity risk management policies and procedures must be established; if assets are staked, isolated, re-staked, limited, or otherwise restricted in liquidity, making T+1 redemption impossible, it is considered “not redeemable at any time”; and if the 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 sufficient 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 revenue models.
Currently, the proposal has not yet been formally finalized. According to Greg Xethalis, Chief Legal Counsel at Multicoin Capital, this regulation still requires public comment and review, with the comment period likely ending 21 days after publication in the Federal Register, meaning that the rule is likely to be finalized in less than 60 days. Once passed, it will open efficient and transparent listing channels for commodity-based ETPs, including crypto assets.
New Rules on the Horizon: Who Are the Biggest Winners?
The universal listing standards for cryptocurrency ETPs are on the verge of being released, and Coinbase, the CFTC, and altcoin ETFs are likely to become the biggest beneficiaries.
As previously mentioned, under the new regulatory framework, as long as a particular asset’s futures have a compliant trading record of over 6 months on the Coinbase DCM contract market, it qualifies for universal listing. This means that Coinbase may become the “certification center” for altcoins seeking to enter ETFs. Not only that, but the new proposal’s support for the staking mechanism also benefits relevant institutions, as Coinbase Custody is currently a recognized mainstream custodian and staking service provider in the U.S., and it is also the 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 implies that which cryptocurrency assets can enter ETFs will be controlled by the CFTC regarding whether their futures can be listed, thereby indirectly affecting ETF eligibility. The regulatory trend is clear, with the product pathways for crypto ETFs determined by the SEC, while asset qualifications are pre-reviewed by the CFTC.
At the same time, the new regulations will also promote the rapid approval and listing of more altcoin ETF products. According to Bloomberg senior ETF analyst Eric Balchunas, cryptocurrencies with over 6 months of futures trading records at the Coinbase Derivatives Exchange will be allowed to enter ETPs under the new standards. Currently, there are about a dozen cryptocurrencies that meet the qualifications, aligning with the market’s previous expectations of an 85% approval likelihood for mainstream cryptocurrencies. Regarding the specific approval timeline, Balchunas indicated it could happen in September or October of this year.
Greg Xethalis also indicated that the New York Stock Exchange and Nasdaq are expected to follow suit soon. There are also pending ETP applications, including those for Solana and XRP. The SEC can 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 be included in the new listing standards (GLS) process for approval. Both are expected to launch in the fourth quarter, including physical delivery and SOL staking yield.
This article is a collaborative reprint from PANews.