The US Securities and Exchange Commission (SEC) continues its cautious approach to exchange-traded funds (ETFs) based on crypto assets. In three separate notices published in the Federal Register on Monday, the agency extended the decision period for two crypto ETF applications and initiated a formal public comment process for a third product.
The SEC postponed the decision process for the PENGU and T. Rowe Price funds
Among the applications for which the SEC postponed the decision are the PENGU ETF, submitted by Canary Capital and focusing on the Pudgy Penguins ecosystem, and the actively managed crypto ETF from traditional asset management giant T. Rowe Price. Canary's PENGU ETF was listed on the Cboe BZX Exchange, while T. Rowe Price's fund was listed on the NYSE Arca. Both applications are being evaluated under the SEC's standard 19b-4 review process. This process allows the commission to extend the initial decision period by up to 45 days. The SEC cited the need for a more thorough examination of market structure, investor protection, and potential price manipulation risks as the reason for the extension.
The institution stated, “The extension of the review period is deemed appropriate to allow sufficient time to approve or reject the proposed rule change.” Canary’s PENGU ETF stands out as one of the most unusual crypto ETF applications before the SEC, aiming to offer indirect exposure to the Pudgy Penguins ecosystem, which originated from an NFT collection. Launched in 2021 on the Ethereum blockchain, Pudgy Penguins has expanded over time to include licensing, digital brand rights, and utility tokens. However, the price volatility of NFT-based assets and the sharp value losses experienced after token launches raise questions about the appropriateness of offering such products to investors under an ETF umbrella. The SEC's final decision on this application could set a significant precedent regarding the extent to which NFTs and assets associated with meme culture can be included in regulated investment products. The debate takes on a different dimension with T. Rowe Price.
The company's actively managed crypto ETF envisions a multi-asset strategy that can invest in up to 15 digital assets, not just Bitcoin and Ethereum. T. Rowe Price, known for its mutual funds and pension products for many years, entering the crypto space on this scale is noteworthy as it demonstrates the level of institutional interest. However, active management and a broader token portfolio mean additional oversight and risk assessment for the SEC. Meanwhile, the SEC has also formally accepted and opened for public comment a separate application by NYSE American. This application concerns the listing of standardized option contracts on the CoinDesk Crypto 5 ETF offered by Grayscale. This fund tracks five major crypto assets: Bitcoin, Ethereum, XRP, Solana, and Cardano. This proposal, which is currently undergoing a review process, is seen as critical to determining whether options trading will become possible on a multi-asset crypto ETF.
