Grayscale Investments, venture capital firm a16z and the Crypto Council for Innovation urged the U.S. Securities and Exchange Commission (SEC) to avoid imposing uniform restrictions on “novel” exchange traded funds.
Summary
- Grayscale, a16z and CCI urged the SEC to assess novel products using individual risk characteristics.
- All three opposed automatically treating products holding nonsecurities as investment companies under existing federal law.
- A16z requested coordinated registration and exchange reviews, alongside clearer timelines for prospective ETF issuer applicants.
- Grayscale and CCI supported optional confidential prefiling discussions to identify regulatory concerns before public submissions.
- SEC’s consultation closed August 31 without creating a rule, decision deadline or automatic product restriction.
The three organizations submitted separate letters dated Aug. 31, the final day of a 60 day SEC consultation. They argued that products involving crypto assets, private investments, leverage and event contracts present different risks and should not be regulated as one category.
The SEC opened the consultation on June 30. It requested feedback on investment company classifications, portfolio conditions, disclosures and the registration process for funds using new assets or strategies.
The request was exploratory. It did not propose a rule, prohibit any products or establish a deadline for further SEC action.
Crypto groups oppose one framework for novel ETFs
A16z argued in its letter that the SEC should assess each product according to its economic structure and underlying risks. It said asset based labels could group established crypto products with less developed strategies that present different liquidity, valuation and custody concerns.
The firm pointed to the growth of regulated crypto market infrastructure, established disclosure practices and generic exchange listing standards. It argued that those developments distinguish some digital asset products from funds holding private securities or using highly leveraged strategies.
Grayscale made a similar case in its submission. It opposed additional portfolio conditions or disclosure requirements that would apply solely because regulators describe a product as novel.
The asset manager said funds with established compliance records should continue to be evaluated using the rules governing their legal structure and assets. Its position does not mean every crypto product carries the same risk as a conventional fund. Instead, Grayscale argued that regulators should identify the specific risk before applying additional conditions.
CCI’s response called for comparable regulatory treatment across ETFs and other exchange traded products. It supported clear investor disclosures while opposing broad changes that could delay otherwise eligible products.
Investment company status remains a central dispute
The SEC asked whether a product mainly investing in assets that are not securities could still qualify as an investment company under the Investment Company Act of 1940.
Under the law’s objective test, an issuer may qualify if investment securities exceed 40% of its total unconsolidated assets after excluding government securities and cash. The agency also applies a separate subjective test that examines an issuer’s activities, public representations, management and sources of income.
Grayscale, a16z and CCI opposed changing those established tests to automatically capture exchange traded products holding nonsecurity assets. Such a change could affect commodity trusts and crypto products structured outside the Investment Company Act.
Spot crypto products often use commodity based trust structures rather than registering as open end investment companies. The SEC itself traditionally calls the spot Bitcoin products approved in January 2024 exchange traded products, or ETPs, rather than ETFs.
The distinction affects governance, registration requirements and the investor protections applying to each structure. It does not determine whether the product can trade on a national exchange.
A16z proposed reserving “ETF” for open end funds registered under the Investment Company Act. Grayscale disagreed, arguing that the label should reflect a product’s economic features rather than its particular legal wrapper.
CCI proposed clearer disclosures showing whether a product is a registered investment company. This approach would retain familiar market terminology while giving investors more information about the rules governing each product.
Industry seeks faster and more coordinated reviews
The SEC’s registration and exchange listing reviews can proceed through separate regulatory channels. Fund documents are generally reviewed by the Division of Investment Management, while exchange listing proposals fall under the Division of Trading and Markets.
A16z said the agency should coordinate the two reviews and adopt predictable timelines. Without coordination, an issuer could resolve questions relating to its registration statement while still facing separate uncertainty over whether an exchange can list the product.
Grayscale and CCI supported an optional confidential prefiling process. Issuers could use the process to identify legal or disclosure concerns before submitting public registration documents.
They argued that early discussions could reduce repeated amendments and prevent avoidable delays. Their proposals would not remove the SEC’s authority to request changes, stop a registration from becoming effective or reject a related exchange rule filing.
The debate follows the SEC’s September 2025 adoption of generic listing standards for commodity based trust shares. Those standards allow qualifying spot crypto products to reach the market without a separate product specific exchange rule change.
As previously reported, the framework can reduce qualifying crypto fund review periods from as long as 240 days to approximately 75 days. Products must still satisfy registration, custody, disclosure and exchange requirements.
The differing registration routes remain relevant. Grayscale recently withdrew three proposed altcoin products after their registrations never became effective, while some of its other products continued through the review process.
SEC has not announced its next step
The consultation covered crypto assets, commodity instruments, single stock strategies, heightened leverage, blockchain enabled products, private assets and event contracts. It asked whether Rule 6c-11 should include new portfolio restrictions, concentration limits or exclusions for certain assets.
Rule 6c-11 currently allows qualifying ETFs to operate without requesting an individual exemptive order. It does not generally restrict the assets or investment strategies that a fund may pursue, although other securities rules still apply.
SEC Chair Paul Atkins said when announcing the review that innovation depends on a “consistent, transparent and efficient regulatory framework.” The agency reported that U.S. ETF assets increased from more than $4 trillion in 2019 to over $12 trillion at the end of 2025.
The SEC must now evaluate the public comments. It could issue guidance, propose amendments, adjust staff review procedures or take no immediate action. Any formal rule proposal would require another public process before becoming binding.
No date has been announced for an SEC response. The letters therefore represent recommendations from industry participants, not changes to existing ETF or crypto ETP rules.
