SEC in Hot Water: Legal Battle Erupts Over Bitwise ETF Stay Decision Post-Approval

The SEC just got served—lawyers are circling after the regulator slammed the brakes on Bitwise's approved ETF. Here's the fallout.

Regulatory Whiplash

One hand giveth, the other taketh away. The SEC greenlit Bitwise's spot Ethereum ETF last month—only to hit pause weeks later. Now, industry heavyweights are firing back with lawsuits. Classic bureaucratic rope-a-dope.

The Irony Is Rich

Same agency that spent years dragging its feet on crypto approvals now faces heat for... delaying an approval. You can't make this up. Meanwhile, Wall Street's high-frequency traders probably got their filings rubber-stamped in nanoseconds.

What's Next?

Legal teams are sharpening knives—this could force the SEC's hand on future crypto products. Or at least make them think twice before jerking the market around. Either way, discovery should be *chef's kiss* delicious.

Bottom line: When regulators play ping-pong with billions, someone eventually gets sued. Pass the popcorn.

Grayscale pushes back as speculation grows about SEC’s stay decision

Meanwhile, the SEC decision has reignited discussions about why the regulator WOULD not allow the firms to convert despite approving the conversion. There are speculations that one or more SEC commissioners might be responsible for the order.

Finance lawyer Scott Johnsson noted that the fact that this is happening again with Bitwise suggests that some “funny business” might be going on.

He explained his theories, stating:

“Either (1) they again approved under delegated authority knowing Crenshaw would throw another wrench — perhaps so GDLC wasn’t penalized by the first wrench or (2) this (and GDLC) was planned by the Commission as an end-around the 240-day statutory period.”

However, Bloomberg ETF analyst Eric Balchunas believes the delay is likely so that the SEC can release its generic listing standards before finally approving the conversion. He predicted that all these should be finalized before the October deadline.

Whatever the reason might be, Grayscale is not having it. Its attorneys have already written to the SEC, calling its order a violation of the timeline for approval. Under the law, the SEC has 240 days to approve or reject an ETF application, but Grayscale contended that the period had already lapsed.

The firm has already threatened to file a petition to lift the stay in what appears to be an attempt to list on the market and enjoy first-mover advantage. It is uncertain whether Bitwise will adopt a similar MOVE or simply wait.

Interestingly, the final deadline for the SEC decision on the Bitwise application is not until next week, which means the approval was accelerated. Thus, it may have to wait a week before it can challenge the SEC for exceeding the deadline.

More spot crypto ETFs are on the way

Despite the stay, the SEC approval represents a major milestone, with many believing that it is a sign of what is to come for pending altcoin ETF applications. Bitwise 10 Crypto Index Fund has exposure to ten major cap assets. These include Bitcoin, Ether, Solana, Ripple XRP, Avalanche AVAX, Chainlink LINK, Uniswap UNI, Cardano ADA, Bitcoin Cash BCH, and Polkadot DOT.

The fund has been trading since 2017, but Bitwise filed for a conversion in November 2024.

Although BTC and ETH account for more than 90% of the Bitwise index fund weighting, the existence of other altcoins and the SEC decision to approve the ETF conversion suggest that the regulator is getting ready to approve single-asset altcoin ETFs.

Commentators believe the regulator could make final decisions on several spot crypto ETFs in the next few months. It is developing a generic listing standard per multiple reports to make the process easier.

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