SEC Novel ETF Review Draws Opposition from Crypto Firms

Grayscale Investments, venture capital firm Andreessen Horowitz (a16z) and the Crypto Council for Innovation have urged the U.S. Securities and Exchange Commission not to treat “novel” exchange-traded funds as a single regulatory category. In separate letters dated Aug. 31, the final day of the SEC’s 60-day consultation, the three organizations said products involving crypto assets, private investments, leverage and event contracts should not be subjected to one set of broad restrictions. SEC Launches 60-day Consultation on New Fund Strategies The SEC opened the public review period on June 30, requesting comments 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. A key question at the center of the review was 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. The consultation also highlighted concerns about how existing ETF rules should apply when products rely on less traditional assets or strategies. A16z Pushes for Review by Economic Structure, Not Asset Labels a16z argued in its submission that the SEC should assess each product according to its economic structure and underlying risks. The firm said “asset-based labels” could place established crypto products into the same bucket as less-developed strategies that involve different liquidity, valuation and custody concerns. The venture capital firm pointed to the growth of regulated crypto market infrastructure, established disclosure practices and generic exchange listing standards. In a16z’s view, those developments distinguish some digital asset products from funds that hold private securities or use highly leveraged strategies. That distinction matters because regulatory conditions designed for certain fund structures may not address the actual risk profile of a crypto-backed product. The firm effectively argued that calling a fund “novel” is not enough to justify treating it like every other new or untested ETF model. Grayscale Warns Against Extra Rules Based on a “Novel” Label Grayscale made a similar case in its letter. The asset manager opposed additional portfolio conditions or disclosure requirements that would apply solely because regulators classify a product as novel. Grayscale said funds with established compliance records should continue to be evaluated using the rules governing their legal structure and assets. That position, according to the letter, does not mean every crypto product carries the same level of risk as a conventional fund. Instead, Grayscale argued that regulators should identify the specific risk present in a product before adding new conditions on top of existing requirements. Crypto Council Calls for Consistent Treatment Across Etps The Crypto Council for Innovation backed a comparable regulatory approach across ETFs and other exchange traded products. Its response supported clear investor disclosures but opposed broad changes that could delay otherwise eligible products. The council’s letter added an advocacy-layer argument: ETF review should be flexible enough to allow genuinely useful products to reach the market while still giving investors transparent information. Broad changes aimed at one type of product, the group warned, could create unintended obstacles for unrelated funds. How Crypto Industry Groups Align on ETF Review Organization Sector / Product Focus Key Warning in Aug. 31 Letter Grayscale Investments Crypto asset manager Rejects extra portfolio conditions or disclosure mandates triggered solely by a “novel” label; says specific risks should be identified before adding requirements. a16z (Andreessen Horowitz) Venture capital firm with crypto-focused funds Wants SEC to evaluate economic structure and real-world risk rather than broad asset labels; cites maturing crypto market infrastructure. Crypto Council for Innovation Crypto industry advocacy group Calls for comparable regulatory treatment across ETFs and exchange traded products, with clear disclosures and no unnecessary delays. The Regulatory Clash Ahead The SEC’s original request did not single out digital assets for prohibition, but it explicitly listed crypto among areas that raise new regulatory questions for investment companies. That framing triggered concern across the crypto industry, where ETFs have become one of the most closely watched product categories. In their comments, the organizations did not argue that every ETF should receive automatic approval. Instead, they urged the SEC to separate true structural risk from mere product novelty. That approach, they said, would allow the regulator to protect investors without blocking eligible funds because of labels that fail to capture how the products actually operate. What the SEC Asked About Crypto and Non-securities The comment process also exposed a broader legal question: whether a fund principally invested in assets that are not securities can still be regulated as an investment company. Under the Investment Company Act of 1940, an investment company generally invests in securities, but new digital asset vehicles may not fit neatly into that definition. The SEC did not answer that question during the comment period. It also did not signal whether the feedback would lead to future rulemaking, staff guidance or individual product decisions. The industry letters now sit on the record as a direct challenge to any approach that would impose uniform restrictions on ETFs labeled novel. Why Are Grayscale and A16z Opposing the SEC’s Novel ETF Review? Grayscale, a16z and the Crypto Council for Innovation say “novel” ETFs should not be treated as one uniform category. They argue that crypto products, private investments, leveraged funds and event contracts carry different risks and need regulation matched to each product’s structure. Did the SEC Propose Any New ETF Rules? No. The SEC opened the consultation to gather public feedback and did not propose a specific rule, ban any products or set a deadline for further action. The comment letters are part of an exploratory review process. What Products Are Covered by the SEC’s Full Review? The consultation focused on funds using crypto assets, private investments, leverage and event contracts. The SEC also asked whether the Investment Company Act of 1940 should apply to investment companies that mainly hold assets that are not securities. What Was Grayscale’s Main Argument? Grayscale opposed extra portfolio conditions and disclosure requirements based only on a “novel” label. It said established funds should be evaluated under existing rules tied to their legal structure and underlying assets, while regulators should identify a specific risk before adding new safeguards. Is There a Deadline for Further SEC Action? No deadline has been set. Aug. 31 was the deadline for public comments, but the SEC has not announced a timeline for deciding whether to change its approach, release guidance or take any additional action.