On January 10, 2024, after 10 years of saying “no,” the United States Securities and Exchange Commission (SEC) approved the application for eleven spot Bitcoin exchange-traded funds (ETFs). Within four months, Bitcoin hit record highs and more than $30 billion was invested in the Bitcoin ETFs. Then, on May 23, 2024, the SEC surprised the crypto community when it effectively approved the sale of spot Ether ETFs (see here). Those ETFs started trading in late July (see here). Bitwise Asset Management was among the companies that launched both Bitcoin and Ether ETFs.
XRP is the digital token that powers the XRP Ledger (XRPL) public blockchain. XRPL is best known for its role in facilitating cross-border payments and remittances, as well as newer capabilities that enable institutional participation in Decentralized Finance. The token has a market value of above $30 billion, making it the seventh most valuable token.
On October 2, 2024, Bitwise filed with the SEC an initial registration statement on Form S-1 for the Bitwise XRP ETP. An exchange-traded product is a regularly priced security that trades on a stock exchange and typically tracks an underlying security, currency or an asset (with ETFs being the most common form of ETP). Bitwise’s proposed fund would hold XRP directly.
The fact that the Bitcoin and Ether spot ETFs were approved by the SEC is by no means an assurance that an XRP ETF will be approved. Prior to the approvals that it granted for Bitcoin and Ether after ten years of denying it, the SEC had clearly said that the Bitcoin was not a security and, arguably, had said the same about Ether. But the situation with XRP is different. The SEC actually sued Ripple Lab, Inc., alleging that it engaged in the unregistered offer and sale of securities in violation of Section 5 of the Securities Act of 1933 in connection with its XRP transactions. In 2023, the judge in that case issued a split decision in which she held that (i) an arrangement by Ripple to sell XRP directly to institutional investors pursuant to written agreements is an investment contract (a security), but (ii) an arrangement by Ripple to sell XRP “programmatically” or through trading algorithms anonymously to the public via crypto exchanges is not an investment contract.
On October 2, 2024 – the same date that Bitwise filed its S-1 — the SEC informed the judge in the XRP case that it would appeal her decision. Accordingly, the status of XRP is very much in regulatory limbo but, as long as the position of the SEC is that XRP is a security, one should not expect approval of Bitwise’s application. Relatedly, this summer, 21Shares and VanEck had both filed initial applications with the SEC for Spot ETFs for the Solana token (the fifth most valuable token by market capitalization) but it was reported that, in August, the SEC rejected the 19b-4 filings for these ETFs because it took the position that Solana should be regarded as a security.
