‘Bizarre Situation’: SEC Halts Conversion for Another ETF Holding Bitcoin, Ethereum, and XRP

The SEC halted another crypto index ETF approval on Tuesday, marking the second time this month that the commission has intervened to block a staff-level recommendation.

This time around, the move affects Bitwise’s 10 Crypto Index ETF, which was approved earlier in the day by the SEC’s Division of Trading and Markets. 

The twin reversals have unsettled crypto ETF observers, especially those backing multi-asset funds. The pause suggests internal resistance to broader crypto products.

“Both of these should be allowed to convert/uplist ASAP.” Nate Geraci, co-founder of The ETF Institute, tweeted Tuesday on X, characterizing the move as a “bizarre situation.”

The approval would have allowed NYSE Arca to list the fund as a “Trust Unit” under Rule 8.500-E, which governs asset-backed exchange-traded products, such as those holding commodities or cryptocurrencies.

But shortly after the order was issued, the SEC’s Office of the Secretary announced the full Commission would review the action under Rule 431, triggering an automatic stay.

Under the rule, the Commission can unilaterally review any decision made by staff under delegated authority. 

Once invoked, the rule automatically suspends the approval until the Commission decides whether to affirm, modify, or overturn it. No timeline is required, and the agency is not obligated to provide a public explanation.

The pattern leaves other ETF issuers in an untenable position: approved by staff but blocked indefinitely by the Commission.

Earlier this month, Grayscale’s Digital Large Cap Fund (GDLC) received staff approval to convert into a spot ETF but was stayed days later under the same rule. The fund similarly holds assets like Bitcoin, Ethereum, and XRP.

A week later, Grayscale responded by warning that the delay had investors “suffering harm” and raised the possibility of legal action.

The index ETF from Bitwise, meanwhile, is designed to track a market-cap-weighted index of the ten largest crypto assets, excluding stablecoins and wrapped tokens, according to the SEC’s approval order published on Tuesday. 

It offers investors diversified exposure to the broader digital asset market through a single exchange-traded product.

Before it was approved and paused shortly after, public comments on Bitwise’s ETF cited market manipulation risks and the reliability of crypto market pricing data, with some urging the SEC to reject the filing, arguing that underlying crypto markets remain prone to fraud and lack sufficient surveillance-sharing agreements to protect investors.

Decrypt reached out to the SEC, Bitwise, and Grayscale for comment.