Cryptocurrency: Gray and a16z increase pressure on SEC on new ETFs

Gray, a16z and the Crypto Innovation Alliance jointly spoke: Call on the SEC to adopt differentiated supervision of new ETFs

Gray Investment, a16z and the Crypto Innovation Alliance recently jointly wrote a letter to the U.S. Securities and Exchange Commission, requiring it not to automatically tighten regulatory rules for new generation ETFs. The crypto industry clearly opposes confusing Bitcoin, Ethereum or other digital assets with private equity funds, leveraged strategies or event contracts. The three agencies advocate that a faster special review mechanism should be established based on the actual risk level of each type of product.

The crypto industry rejects "one size fits all" regulation

The U.S. Securities and Exchange Commission has been studying the matter for several weeks. The regulatory agency publicly solicited opinions on new ETFs and digital assets at the end of June, and Gray and a16z recently formally submitted feedback.

The core consensus in the letter between the two institutions is quite clear: crypto ETFs should not automatically face additional regulatory constraints simply because they are identified as "new" or "non-traditional" products. The scope of the SEC's research is extremely broad and may cover multiple products such as crypto assets, private equity, commodities, single stocks, highly leveraged strategies, and forecasting markets.

a16z points out that these products have essential differences in liquidity, valuation and investor protection. The company emphasized that crypto ETFs and ETPs have now established more mature infrastructures. Bitcoin and Ethereum ETFs have set a precedent, and Solana-related products are also listed for trading in the United States. A16z believes that it is obviously inappropriate to set rules for each new category from scratch.

Differences between gray scale and a16z are proposed

However, the two institutions have differences on specific strategies. A16z advocates retaining the current definition of "investment company" in the Investment Company Act of 1940, arguing that funds that hold mainly non-securities assets should not be automatically included in this category.

Gray takes a similar position, but places more emphasis on compliance history. The asset management company explicitly opposes the SEC imposing new portfolio constraints, minimum securities holdings or other additional restrictions on crypto products with a track record of compliance. The issue has taken on real urgency for Grayscale, which withdrew three ETF applications in August involving Cardano, Hedera and Polkadot.

Time nodes are another big problem. At present, the issuer can complete part of the fund registration process while the approval for listing on the exchange is still in progress. a16z hopes to harmonize the two processes, propose standardized timelines, shorten review cycles and, where feasible, synchronize approvals.

Gray proposes another solution: to establish an optional and confidential pre-trial process before formal submission of documents and stipulate a time limit for SEC staff to respond. The Cryptographic Innovation Alliance also supports this mechanism, pointing out that current documents are easily copied quickly after being made public, and the popularity of artificial intelligence may further aggravate this phenomenon.

The new wave of crypto ETFs was at the time

The relevant market was already quite large. According to data cited in the response filed with the SEC, U.S. ETFs hold more than $12 trillion in assets and have more than 4600 existing funds.

Although crypto assets only account for a part of it, they are growing rapidly. The size of U.S. spot Bitcoin ETF assets has recently approached US$100 billion, Ethereum and Solana-related products have also been launched, and fund managers are testing a variety of assets farther away from the two mainstream crypto assets.

One detail remains divided: a16z wants to limit the term "ETF" to funds registered under the Investment Company Act, with other products clearly labeled as ETPs. Gray objected to this, arguing that the term ETF could also describe listed products with arbitrage mechanisms and transparent pricing, regardless of their specific legal framework.

The Cryptographic Innovation Alliance tends to provide a clearer description of the regulatory status of each product category rather than completely changing its name. The SEC must now strike a balance between investor protection, approval efficiency and an increasingly diverse array of crypto products. Candidate products are no longer limited to Bitcoin or Ethereum-Gray has submitted an application to Nasdaq to launch a BNB ETF.