The US Securities and Exchange Commission (SEC) has postponed a decision on Bitwise’s proposed conversion of its crypto index fund to an exchange-traded fund. It has set a new deadline of March 3, 2025, by which it will either approve, reject, or initiate additional proceedings to review the request.
The announcement read, “The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein.”
Apparently, this action is allowed as the Commission has the authority to extend its review. This is in order to guarantee a thorough assessment of the potential repercussions of approving such a product under the Securities Exchange Act.
Additionally, the filing has revealed that NYSE Arca initially filed the application with the SEC on November 15, 2024. The SEC published the proposed rule change in the Federal Register on December 2. This kicked off a public comment period.
Update: As expected the SEC has punted/delayed the decision on @BitwiseInvest's filing to convert the Bitwise 10 Crypto Index Fund (BITW) into an ETF. Final deadline is in late July pic.twitter.com/wRzaROBNqy
— James Seyffart (@JSeyff) January 14, 2025
According to Bloomberg ETF analyst James Seyffart, this was no surprise. He stated, “As expected, the SEC has punted/delayed the decision on Bitwise Invest’s filing to convert the Bitwise 10 Crypto Index Fund (BITW) into an ETF.”
Bitwise initiative vs. SEC reasoning
Bitwise’s 10 Crypto Index Fund, currently valued at $1.4 billion, is traded on the OTCQX best market. Established in 2017, the fund monitors the performance of the ten major crypto assets by market capitalization, including Bitcoin, Ethereum, Solana, and XRP.
The Bitwise 10 Crypto Index Fund was launched with 75.14% Bitcoin and 16.42% Ether as the majority of its assets. It has provided exposure to digital assets, including Solana (SOL), XRP, Cardano (ADA), Avalanche (AVAX), Chainlink (LINK), Bitcoin Cash (BCH), Polkadot (DOT), and Uniswap (UNI).
Hunter Horsley, the CEO of Bitwise, emphasized the advantages of converting the fund into an ETF. He cited improved efficiency, enhanced investor protections, and a closer alignment with Net Asset Value (NAV).
On the other hand, the SEC’s decision to postpone is consistent with its cautious stance toward investment products that are related to crypto.
Apparently, the Commission is committed to understanding the overall implications of introducing a broad-based crypto index ETF. However, as indicated in the filing, no public comments have been received on the proposed rule change.
Additionally, the SEC has previously expressed apprehensions regarding market manipulation, liquidity, and investor protections in the context of crypto ETFs. By extending the review period, the Commission wants to resolve these issues thoroughly before making a final decision.
Still, Bitwise’s Chief Investment Officer, Matt Hougan, highlighted the fund’s pioneering role in offering index-based exposure to the crypto industry. Hougan said, “Since its inception, BITW has aimed to offer investors diversified exposure to the groundbreaking potential of crypto markets.”
Meanwhile, the US-based spot Bitcoin ETFs have seen huge outflows of $1.2 billion in the last four days. The 12 spot ETFs lost a total of $209.82 million in assets, with BlackRock’s IBIT fund losing the most at $219.48 million.
This is the fund’s second-largest negative flow since its launch a year ago, after only the record $332 million outflow it saw earlier this year. Bitwise’s BITB was the second ETF to see outflows, with $8.93 million leaving the fund.
SEC’s delay impact on Bitwise
According to James Seyffart, the SEC will likely postpone Grayscale’s comparable request to convert its mixed-crypto fund into an ETF at its upcoming deadline on February 2.
The SEC also postponed its decision in November on whether to authorize options on spot Ethereum ETFs from Bitwise and Grayscale. However, following an initial delay, it approved the first Bitcoin and Ethereum combination ETFs from Hashdex and Franklin Templeton in December. In October, Bitwise also submitted an application for an XRP ETF.
Additionally, at the same time, Osprey Funds declared its intention to submit a registration statement to the SEC to convert its Osprey Bitcoin Trust into an ETF as expeditiously as possible.
Notably, in August of last year, Osprey Funds entered into an agreement with Bitwise Asset Management to acquire all of the OBTC fund’s assets via its spot Bitcoin ETF.
However, Osprey Funds terminated the asset purchase and contribution agreement in a separate press release that was issued on Tuesday at the same time. This decision was made because the parties had not received all regulatory approvals by December 31.
The company stated, “Osprey intends to subsequently provide its investors with an update regarding its strategic alternatives for OBTC in the future.”
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