Crypto ETF Floodgates Will Open If SEC Crosses Regulatory 'Rubicon' for XRP, Solana and Dogecoin: Analyst

From Dogecoin to the first lady’s meme coin, a flurry of filings from asset managers eager to offer new crypto products may well push the Securities and Exchange Commission past a point of no return.

As the Commission moves to clarify crypto rules under President Donald Trump, applications for spot crypto ETFs appear to be popping up day by day—ranging from Dogecoin, the original meme coin beloved by Elon Musk, to altcoins like XRP, Solana, HBAR, and Litecoin. 

An ETF is an investment product that allows its buyers to gain exposure to an asset without the need to hold, or store, the asset directly. Bitcoin ETFs, which were just approved by the SEC last year, enable investors to buy into BTC without dealing with cryptocurrency exchanges or digital wallets. Shares in these ETFs can be purchased via traditional brokerages, just like stocks.

Without speaking to any of the firm’s specific SEC filings, Bitwise CEO Matt Hougan told Decrypt that regulators could approve spot ETFs for as many as five different digital assets this year. In order for that to happen, however, he said that the SEC would need to cross a regulatory “Rubicon.” 

“All commodity-based ETPs, [or] exchange-traded products, have had a regulated futures market,” he said. “There are no regulated futures markets outside of Bitcoin and Ethereum.”

While the latest crypto boom was juiced by the SEC’s approval of spot Bitcoin ETFs a year ago—and the mountains of cash that followed—the SEC dragged its feet for a decade on spot Bitcoin ETFs, consistently citing fraud and market manipulation concerns in its rejections.

Still, the SEC approved Bitcoin futures ETFs in 2021, and that decision ultimately paved the way for spot Bitcoin ETFs, following the asset manager Grayscale’s courtroom victory years later.

‘Arbitrary and capricious’

Bitcoin futures ETFs give investors exposure to contracts that trade on CFTC-regulated exchanges, such as the Chicago Mercantile Exchange (CME). A market surveillance team at the CME Group monitors trading to prevent any sketchy behavior, such as market manipulation.

Grayscale sued the SEC after the Commission rejected its application to uplist the Grayscale Bitcoin Trust (GBTC) into a full-fledged ETF. While the SEC pointed to its familiar concerns yet again, Grayscale argued that Bitcoin futures ETFs nullified those worries.

“Because the spot Bitcoin market and the CME Bitcoin futures market are so tightly correlated, a price distortion in the spot market will be reflected in the price of the futures market,” a federal appeals court ultimately ruled, finding the SEC’s rejection was “arbitrary and capricious.”

After it was found that the SEC’s grounds for rejecting Grayscale’s bid didn’t add up, a clutch of products from 10 asset managers, including Bitwise, started trading less than five months later.

The Commission’s subsequent approval of spot Ethereum ETFs, however, was a shocker. 

Though the CME hosts Ethereum futures, and the SEC approved Ethereum futures ETFs in 2023, a lawsuit filed by the Ethereum software developer Consensys alleged that the SEC internally viewed Ethereum as a security, with plans to designate the cryptocurrency as such. (Disclosure: Consensys is one of 22 investors in an editorially independent Decrypt.)

$MELANIA

Bitwise filed for a spot Dogecoin ETF this week, but the asset manager Tuttle Capital Management pushed for leveraged ETFs covering relatively nascent meme coins on Monday.

The firm filed applications for a slew of leveraged ETFs, covering the president’s meme coin—no more than two weeks old—and the first lady’s token, per the Wall Street Journal. It also sought to establish a leveraged ETF for the Solana meme coin Bonk, among other tokens. 

Hougan is doubtful that the application centered on the first lady’s meme coin will leave the Commission’s desk with a stamp of approval, but other cryptocurrencies that are closer to resembling a commodity may have a shot.

“If we cross that Rubicon, to some degree, then the floodgates are open,” Hougan said of further crypto ETF approvals. “We don't know how far they're open, but I bet it’s not just a crack.”

In Germany and Switzerland, among many other markets, regulators have found that a regulated futures market wasn’t necessary to approve a spot crypto ETF beyond Bitcoin and Ethereum, Hougan said. 

In the U.S., it would still be a big deal if a new precedent was established.

“It’s not an ETF commandment written by God on stone,” Hougan said. “Whatever that new standard is, if we get there, then I think there are many more opportunities.”

At the end of the day, the SEC may not have to cross a perceived Rubicon, at least when it comes to Solana. 

Mirroring contracts that would be listed by the CME Group, Coinbase acknowledged it was moving to establish Solana futures on its derivatives exchange Thursday, saying it was “actively working with the Commodity Futures Trading Commission.”

The SEC declined comment to Decrypt.