SEC faces legal action after stay decision on Bitwise ETF despite approval

The US Securities and Exchange Commission (SEC) has approved the conversion of Bitwise 10 Crypto Index into an exchange-traded fund. The SEC’s Division of Trading and Markets approval follows a similar decision on the Grayscale Digital Large Cap fund.

Similar to the Grayscale’s approval, the SEC has also ordered a stay on the conversion, which effectively pauses the listing of the index fund as an ETF until the stay is lifted. The accelerated approval from the Division of Trading and the stay order from the SEC  assistant secretary Sherry Haywood came within a few hours of each other.

Haywood’s letter stated:

“This letter is to notify you that, pursuant to Rule 431 of the Commission’s Rules of Practice, 17 CFR 201.431, the Commission will review the delegated action. In accordance with Rule 431(e), the July 22, 2025 order is stayed until the Commission orders otherwise.”

Unsurprisingly, the stay has raised several eyebrows in the crypto and ETF space, with ETF Foundation President Nate Geraci describing it as a “bizarre situation.” In his opinion, the SEC should allow Grayscale and Bitwise to convert their multi-asset funds to ETFs immediately.

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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