Ripple ETF: Could It Happen? Bitwise's Filing Faces Uncertain Path Amid Regulatory Concerns

The S-1 filing by Bitwise Asset Management for a proposed XRP exchange-traded product (ETP) has sparked debate among investors and analysts regarding its potential approval by the U.S. Securities and Exchange Commission (SEC).

What Happened: The proposal seeks to create a fund that directly holds XRP/USD, providing investors with exposure to the digital asset.

However, the possibility of this ETF coming to fruition remains clouded by legal and regulatory uncertainties.

Nate Geraci, President of the ETF Store, pointed out the significance of Bitwise's filing in the current crypto market context. “Bitwise positioning to file for XRP ETF is highly noteworthy IMO,” he tweeted.

Geraci further emphasized that Bitwise, a credible crypto-native fund firm, is not known for making arbitrary moves.

“This is strategic,” he added, suggesting that the company's application might be influenced by larger market dynamics, including the outcome of the upcoming November elections.

Yet, there are significant roadblocks ahead for this proposed ETF.

Alex Thorn, Head of Research at Galaxy Research, noted a critical juncture approaching in the legal battle between Ripple and the SEC.

“The SEC has until next week (Oct. 7) to appeal Judge Torres' July 2023 ruling, which held that secondary sales of XRP through exchanges were not securities,” he tweeted.

Thorn suggested that the likelihood of the ETF filing succeeding would plummet to “near zero” if the SEC proceeds with an appeal, adding, “I'll be very surprised if they don't appeal.”

Adding to the complexities, Bloomberg‘s Senior ETF Analyst Eric Balchunas introduced the political dimension into the debate. He likened the filing to a “call option on a Trump win,” implying that a change in political leadership could alter the regulatory landscape under which such crypto products are evaluated.

“If Harris wins, no way these get approved, and the ‘call' expires worthless,” Balchunas commented, indicating how volatile the regulatory environment could be, especially given the potential changes at the SEC's helm.

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Why It Matters: Despite these challenges, the filing by Bitwise is noteworthy.

The San Francisco-based asset manager, known for its various crypto-focused investment products, has been expanding its offerings in the digital asset space.

The firm recently launched spot Bitcoin BTC/USD and Ethereum ETH/USD ETPs and acquired ETC Group, a leading issuer of crypto ETPs in Europe.

Bitwise's move to pursue an XRP ETF comes amid a surge in popularity for crypto ETFs, which have attracted billions of dollars in inflows this year.

However, the SEC’s history with Ripple looms large over this application. XRP, the digital asset underlying the XRP Ledger, was created by Ripple, a fintech company aiming to streamline cross-border payments.

In 2020, the SEC filed a $1.3 billion lawsuit against Ripple, alleging that the company sold unregistered securities in the form of XRP.

While Ripple scored a partial court victory in 2023, when a judge ruled that programmatic sales of XRP to retail investors did not qualify as securities, the ruling also stated that $728 million worth of institutional sales did constitute unregistered securities.

This mixed legal outcome leaves the status of XRP in a regulatory gray area, complicating the potential approval of an ETF based on the asset.

Bitwise CEO Hunter Horsley expressed optimism despite these hurdles, stating, “At Bitwise, we believe blockchains will usher in new, apolitical monetary assets and permissionless applications for the 21st century.”

What’s Next: The broader implications of this filing and the political and regulatory developments surrounding it will be critical talking points at the upcoming Benzinga Future of Digital Assets event on Nov. 19.

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