Following the U.S. Securities and Exchange Commission (SEC) seeking public input on its review approach to “novel” exchange-traded products, multiple crypto institutions have publicly opposed uniform restrictions. Grayscale, venture capital firm a16z, and the Crypto Innovation Council argue that products involving crypto assets should not automatically be subject to additional restrictions or treated under the same framework solely because they are classified as “novel.”
Oppose classifying them as a single category
Three institutions submitted their comments on August 31, which was the deadline for the SEC’s 60-day comment period. The comment period began on June 30 and covered topics including crypto assets, commodities instruments, single-stock strategies, highly leveraged products, blockchain-related products, private assets, and event contracts.
Their common view is that these products differ in structure, liquidity, valuation methods, and custody risks, and should not be subject to the same regulatory treatment simply because they are all labeled as "new."
a16z stated that the SEC should evaluate each product based on its economic structure and underlying risks, rather than categorizing them by asset labels. The agency believes that regulated crypto market infrastructure has clearly evolved, and disclosure practices and exchange listing standards have gradually matured, making certain digital asset products substantially distinct from private securities funds or highly leveraged strategy products.
Grayscale also opposes imposing new holding conditions or additional disclosure requirements solely because regulators classify a certain product type as "novel." The company believes that funds with established compliance records should continue to be governed by existing rules applicable to their legal structure and underlying assets.
Investment companies identified as focal points
A central issue in this round of public consultation is whether a product that primarily invests in non-securities assets could still be classified as an investment company under the Investment Company Act of 1940.
Under the current objective test, if an issuer’s investment securities exceed 40% of its unconsolidated total assets, after deducting government securities and cash, it may fall within the definition of an investment company. The SEC also makes a subjective determination based on the issuer’s business activities, public statements, management practices, and sources of income.
Grayscale, a16z, and the Crypto Innovation Council all oppose amending these existing tests to automatically bring exchange-traded products holding non-securities under investment company regulation. Such changes could impact commodity trusts and affect numerous crypto products currently structured outside the framework of the Investment Company Act of 1940.
Spot crypto products typically use a trust-based structure rather than registering as open-end investment companies. When the SEC approved spot bitcoin products in January 2024, it generally referred to them as ETPs rather than ETFs. This distinction affects governance structures, registration requirements, and investor protection arrangements, but does not directly determine whether a product can be listed on a national exchange.
The industry requires coordinated audit processes.
In addition to regulatory guidelines, the review process is also a key focus for the industry. Currently, fund registration documents are typically reviewed by the SEC’s Investment Management Division, while exchange listing applications are handled by the Trading and Markets Division—two parallel pathways that do not always align.
a16z urges the SEC to coordinate these two reviews and provide a more predictable timeline, arguing that issuers may continue to wait indefinitely even after resolving registration document issues due to uncertainty around exchange listing approvals.
Grayscale and the Crypto Innovation Council support establishing an optional confidential pre-filing mechanism that allows issuers to identify legal or disclosure issues before publicly submitting materials. They believe this would help reduce iterative revisions and avoid unnecessary delays.
The SEC has not yet announced its next steps. This round of public comments did not propose any formal rules, set a decision deadline, or automatically restrict any products. Next, the SEC may issue guidance, propose amended drafts, adjust its internal review processes, or choose to take no further action.