The U.S. Securities and Exchange Commission (SEC) stunned markets this week with a dramatic about-face. After approving Bitwise’s long-anticipated crypto ETF conversion, the agency abruptly hit pause, just hours later. The move has left investors baffled, analysts frustrated, and legal experts dissecting the SEC’s opaque regulatory process, especially regarding Rule 431. At stake is not only the fate of the Bitwise crypto ETF but also the broader credibility of the SEC’s crypto oversight framework.
A Fast-Track Approval Followed by a Sudden Stall
Bitwise had received accelerated approval to convert its $1.68 billion crypto index fund into a spot ETF. This new ETF would allow investors exposure to a diversified basket of digital assets, including Bitcoin (BTC), Ethereum (ETH), XRP, and a range of altcoins. The market saw the approval as a breakthrough for the crypto ETF sector, especially amid growing institutional interest.
But in a stunning reversal, the SEC halted the approval just hours later. Effectively, it froze the Bitwise crypto ETF conversion before it could proceed. The agency issued no clear public explanation. However, sources close to the matter point to procedural concerns under Rule 431, which governs the review and suspension of prior decisions.
Markets React and XRP Takes a Hit
News of the Bitwise ETF pause reverberated through crypto markets. XRP, one of the core assets in the proposed ETF, saw a steep 6% price drop within hours. Traders scrambled to assess whether the SEC’s action signaled deeper regulatory hostility toward altcoin exposure or merely internal disorganization.
Investor sentiment also took a hit. The move sparked confusion and concern across the market, with analysts questioning the SEC’s transparency and decision-making process. Trading desks and social media platforms echoed similar sentiments.
Rule 431: The Procedural Brake Behind the Pause
At the heart of the confusion is Rule 431 SEC. This internal provision allows the agency to suspend decisions it deems to have been made in error or without full procedural compliance. While Rule 431 is not new, its application in active ETF approvals is rarely invoked in such a public and disruptive way.
Importantly, the Bitwise decision mirrors what occurred earlier this month with Grayscale’s Digital Large Cap Fund (GDLC). The SEC approved the multi-asset crypto ETF conversion on July 1, only to subsequently pause the approval shortly after. These back-to-back reversals suggest a broader procedural shift within the SEC’s handling of multi-asset crypto ETFs.
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Transparency on Trial: What’s at Stake
The SEC halting Bitwise’s ETF has reignited criticism of the agency’s regulatory approach to crypto. Critics argue that such erratic behavior not only stifles innovation but also opens the door to perceptions of bias or inconsistency, especially when no detailed rationale accompanies a major decision.
Analysts also worry about the chilling effect this could have on other pending crypto ETF applications. If Bitwise, one of the most compliance-forward asset managers in the space, can be blindsided, what does that mean for others?
Moreover, questions linger about whether this action bears political motivations or if someone contested it internally. Regardless of intent, the optics are poor: the SEC appears divided, opaque, and unreliable in its treatment of crypto assets.
What’s Next for Bitwise?
Bitwise has not issued a formal statement beyond acknowledging the pause. Insiders suggest the firm may appeal or refile, though the lack of public SEC guidance complicates that path.
In the meantime, the paused ETF remains in limbo, and so does investor confidence in SEC crypto regulation. The reversal may also delay broader adoption of altcoin ETF approval efforts, particularly those including tokens like XRP, which already carry regulatory baggage.
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Conclusion: Repercussions Far Beyond Bitwise
This isn’t just a procedural hiccup. It’s a growing trend of regulatory whiplash within the SEC. The agency’s decision to greenlight and then immediately halt the Bitwise crypto ETF, just weeks after doing the same with Grayscale’s GDLC, raises serious questions about due process, regulatory transparency, and the future of digital asset exposure in mainstream financial markets.
Until clearer answers emerge, the crypto industry is left grappling with a familiar foe: uncertainty.
Readers’ frequently asked questions
What is Rule 431, and how does it affect ETF approvals?
Rule 431 is an internal SEC procedure that allows the Commission to stay or suspend its own actions if they are later deemed to have been made in error or without full procedural review. In the Bitwise case, it was reportedly used to pause the ETF approval hours after it was granted.
Can the paused Bitwise crypto ETF still launch later?
Yes. A paused approval under Rule 431 does not mean permanent rejection. Bitwise may refile, respond to procedural concerns, or appeal the decision. However, until the SEC issues further clarification on its ETF reversal, the launch is on hold indefinitely.
What makes a crypto ETF “multi-asset,” and how is it different from a Bitcoin-only ETF?
A multi-asset crypto ETF holds a basket of cryptocurrencies, such as Bitcoin, Ethereum, XRP, and others, rather than just Bitcoin. This allows investors to gain broader exposure to the crypto market in a single fund. In contrast, a Bitcoin-only ETF tracks the performance of Bitcoin alone.
What Is In It For You? Action items you might want to consider
Monitor SEC Commission review decisions under Rule 431
Investors and fund managers should track developments around Rule 431 reviews, especially in cases where staff approvals are paused. These actions could delay or derail ETF launches with little notice.
Reassess ETF exposure to multi-asset crypto funds
Given the regulatory volatility, investors considering exposure through multi-asset ETFs like Bitwise or Grayscale GDLC should reevaluate their timelines and risk assumptions.
Follow SEC guidance on delegated authority procedures
Legal and compliance teams at financial institutions should stay updated on SEC guidance regarding staff-level authority and potential for reversals. Internal investment decisions should factor in these regulatory dynamics.
Explainer: What Is Rule 431 and How Does SEC Delegated Authority Work?
Rule 431 of the SEC’s Rules of Practice allows the Commission to review and potentially reverse decisions made by its staff under delegated authority. Specifically, Rule 431(e) enables an automatic stay on a staff-approved action, such as an ETF approval, if a Commissioner requests full Commission review.
This was the basis for the rapid SEC reversal of Bitwise’s and Grayscale’s crypto ETF conversions in July 2025. In both cases, the Division of Trading and Markets initially approved the ETFs, but the Commission stayed those approvals under Rule 431, halting their progress.
The SEC’s Rules of Practice also include a detailed delegation framework (outlined in 17 CFR § 200.30‑1 through § 200.30‑18), which assigns specific powers to various staff roles. These rules streamline decision-making while preserving the Commission’s ability to intervene when necessary, though this dual structure has recently led to abrupt and confusing SEC policy reversals in the crypto ETF space.
