US SEC Opens Review of Crypto ETF & Prediction Markets

Key Insights

• The US SEC seeks comment on novel ETFs for prediction markets and other blockchain-enabled products.
• Prediction markets are among the fastest-growing sub-sectors of the crypto industry.
• Over the past year, the financial regulator has increasingly taken a pro-crypto approach.

The US Securities and Exchange Commission (SEC) is seeking public comments. The organization plans to overhaul the rules of exchange-traded funds (ETFs).

It disclosed this in a press release on Tuesday. The organization stated that it is focusing on regulating ETFs linked to innovative products. The regulator wants feedback on how to facilitate innovation with ETFs while protecting investors and ensuring efficient markets.

SEC Reviewing ETF Rules for Novel Products

The SEC’s publication stated that ETF sponsors have expressed interest in providing exposure to novel products or using novel investment strategies. These products include event contracts, blockchain-based opportunities, crypto assets, and similar products.

With increased interest in novel ETFs, there have been questions about how existing rules apply to them. Some are also considering whether the new rules are needed. The public comment is expected to provide some clarity.

SEC call for public comment | Source: SEC

Some of the questions the SEC is asking are whether novel funds need to register as an investment company. It is also seeking feedback on applying the standardized ETF listing framework to novel products.

Speaking on the move, SEC Chair Paul Atkins stated that there is a need for a consistent, transparent rule for ETFs. That will help in fostering innovation. “I look forward to reviewing feedback from market participants as we evaluate how to best respond to recent market changes,” he said.

SEC Likely to Approve Prediction Market ETFs as it Becomes More Pro Innovation

Meanwhile, experts believe that the public comment is a step towards the regulator allowing such novel ETFs. It will be open for 60 days.

The regulator already permits crypto ETFs. However, it is expected that ETFs based on event contracts, single-stock strategies, and other novel products could launch as soon as next year.

ETFs linked to event contracts are particularly likely with the explosive growth of prediction markets. The sector has reached new highs this year, with average monthly notional volume now around $30 billion.

There are already several applications for ETFs linked to prediction markets. However, the SEC has delayed a decision on the proposals. It plans to get public comments before making its decision.

However, that decision will likely be positive given how the regulator has treated crypto ETFs under the Trump administration. The Gary Gensler administration approved the first Bitcoin and Ethereum ETFs. Despite this, the Atkins-led SEC has also approved additional ETFs for new crypto assets.

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