SEC Punts on Decision on Hashdex, Grayscale Crypto ETFs

Regulators deferred an opportunity to approve or deny the first spot bitcoin exchange-traded fund on U.S. markets, at the same time that investors and industry analysts are raising expectations an approval is coming soon. 

The Securities and Exchange Commission delayed Brazil-based digital asset investment firm Hashdex’s application until next year. The SEC had until Nov. 17 to deny, approve or delay the firm’s product. The delay is Hashdex’s first on its September filing.

The agency on Thursday delayed a pair of ether ETF decisions: it postponed its verdict on the Hashdex Nasdaq Ethereum ETF, which would hold both spot ether and ether futures, as well as the decision on Grayscale Investment’s proposed ether futures ETF, the Grayscale Ethereum Futures Trust (ETH). 

The SEC hasn’t appeared willing to satisfy investors’ appetites for a spot bitcoin ETF, even as mounting expectations for an approval helped double the cryptocurrency’s price over the past year. Spot bitcoin ETF applications from ARK Invest and 21Shares have been delayed three times, while Bitwise Investment Management, BlackRock Inc., Invesco and others have seen their applications delayed twice.

While the SEC has approved cryptocurrency ETFs that track digital asset futures, the largest being the ProShares Bitcoin Strategy ETF (BITO), the agency has thus far denied and delayed filings for ETFs that track physically-backed cryptocurrency on the grounds of market manipulation.

Still, investors are sensing that the SEC may be open to permitting a spot bitcoin application after denying dozens of them over the past decade. This comes after the SEC’s loss of a watershed lawsuit to Grayscale Investments in late August, in which a federal court ruled that the agency erred in blocking Grayscale's application to convert its bitcoin trust into an ETF.  

Hashdex ETF Approach 

Hashdex filings for cryptocurrency ETFS are unique from other firms because they are structured under the 1933 Securities Act, as opposed to the 1940 Investment Act. While the 1940 Investment Act allows ETFs to invest in securities, ETFs under the 1933 can invest in commodities.

In mid-October, Hashdex gave a presentation to the SEC about the firm’s novel method for addressing the SEC’s market manipulation concerns. Their approach in their spot bitcoin ETF application is unique because their fund would buy physical bitcoin directly from the Chicago Mercantile Exchange.

The Hashdex Bitcoin Futures ETF (DEFI) has garnered only slightly over $2 million in assets since its launch in September 2022.

Contact Lucy Brewster at [email protected].