SEC Reassesses Approval Rules for Novel Crypto ETFs, Opens Public Consultation

The SEC has largely policed token fundraising through the Howey test since the 2017 ICO boom, forcing issuers whose sales constitute investment contracts to use securities rules designed for conventional assets. That approach pushed many projects offshore and limited U.S. participation, according to Chairman Paul S. Atkins. With Congress yet to complete a durable crypto-market framework, the agency’s move toward tailored exemptions marks a shift from enforcement-led oversight to regulated capital formation.

On Aug. 18, 2026, the SEC proposed “Regulation Crypto Assets,” offering a startup exemption of up to $5 million over four years and a separate fundraising exemption of up to $75 million in any 12 months. Both routes require tailored disclosures, while the larger exemption adds financial statements and ongoing reporting. A conditional safe harbor could end investment-contract treatment once promised essential managerial efforts are completed or permanently halted. Comments are due Oct. 20.

The US crypto ETF market has expanded beyond spot bitcoin and ether funds, bringing more complex and novel products under regulatory scrutiny. Industry participants argue that a blanket framework could treat materially different assets and fund structures as if they posed identical risks. The debate matters because the SEC’s approach could shape investor protections, issuers’ ability to innovate and the speed at which new exchange-traded products reach the market.

Grayscale, venture-capital firm Andreessen Horowitz, known as a16z, and the Crypto Council for Innovation submitted comments urging the SEC to avoid broad restrictions on novel ETFs. The groups called for product-by-product assessments based on each fund’s structure and risk profile, alongside a more predictable and efficient review process. The reports did not specify the filing date, the number of products potentially affected or any associated dollar amount.

The SEC’s custody rules determine how registered investment advisers and investment companies safeguard client and fund assets, including crypto. A 2023 proposal under then-Chair Gary Gensler would have steered advisers toward a narrow group of “qualified custodians,” such as chartered banks or trust companies, SEC-registered broker-dealers and CFTC-regulated futures commission merchants. It drew objections over cost and access, was never finalized and was withdrawn in 2025. The issue matters because custody rules shape institutional participation while setting protections for investors’ assets.

On Aug. 25, 2026, the SEC submitted “Amendments to the Custody Rules” to the White House Office of Management and Budget for review, a preliminary step before the agency can publish a formal proposal. The public agenda classifies the item as economically significant and deregulatory, with a notice of proposed rulemaking tentatively scheduled for October 2026. Details remain undisclosed, but the SEC says the overhaul would clarify crypto custody for investment advisers and investment companies, modernize outdated provisions and remove burdens no longer needed for investor protection as market and asset-holding practices evolve.

Proposed novel exchange-traded funds would be linked to prediction markets, allowing investors to wager on binary event contracts such as election outcomes. The products have drawn intense scrutiny because they combine traditional financial instruments with highly speculative contracts that can leave investors with a total loss if their predictions prove wrong. They have also sparked ethical concerns over the “gamification” of financial markets and investor protection.

Since February 2026, the U.S. Securities and Exchange Commission has put more than 24 proposed novel ETFs on hold, including applications from Roundhill and other issuers. The SEC formally issued a request for comment on June 30, 2026, opening a 60-day public consultation. The initial responses have been largely skeptical, reflecting widespread concern that the products could fuel speculation and sharply increase risks for ordinary retail investors.

The U.S. Securities and Exchange Commission has long applied securities laws to crypto-asset issuance and fundraising, leaving development teams uncertain about whether tokens qualify as securities and must be registered. The proposed “Regulation Crypto” would provide a temporary registration exemption, reducing compliance costs for startups and signaling a shift in the SEC's regulatory approach toward supporting industry growth.

The SEC is expected to propose its first major crypto rule as soon as July 2026, with a safe harbor for crypto developers, startups and fundraising activities at its core. The proposal would ease registration requirements and barriers to raising capital. The duration of the exemption, eligibility conditions and fundraising cap have not been disclosed. The measure would still be subject to public consultation and a formal rulemaking process.