SEC’s new generic standards set the stage for a product flood. Here’s how APs, custody, borrow, and spreads will cope, and which ETFs may close first.
The SEC's approval of generic listing standards for crypto ETPs on Sept. 17 cut the launch timeline to 75 days and opened the door to plain-vanilla products.
“We're going to see a lot of liquidations.”
That pairing of explosive growth and swift culling defines the next phase, as generic standards ( The U.S. Securities and Exchange Commission (SEC) has approved new generic listing standards for commodity-based trust shares on Nasdaq, Cboe, and the NYSE, aiming to accelerate the approval process for crypto-related exchange-traded products (ETPs). While the move streamlines approvals and could shorten launch times for digital asset ETPs, threshold requirements mean not all products will immediately qualify. The decision follows years of regulatory back-and-forth and signals the SEC’s intent to provide more clarity for issuers, though future iterations may further refine these standards. Experts caution that the “floodgates” for crypto ETPs are not fully open yet, and broader adoption will depend on upcoming SEC actions. ) solve a timing problem rather than a liquidity problem. For Bitcoin, Ethereum, and Solana, the flood reinforces dominance. For everything else, it is a stress test.
The new rules mirror what the SEC did for equity and bond ETFs in 2019, when annual launches jumped from 117 to over 370. Fee compression followed immediately, with dozens of small funds closed within two years.
Crypto runs the same experiment with worse starting conditions. Custody is heavily concentrated: Coinbase holds assets for the vast majority of crypto ETFs, claiming an up to 85% share of global Bitcoin ETFs.
Additionally, APs and market makers depend on a handful of venues for pricing and borrowing, and many altcoins lack the derivatives depth to hedge creation/redemption flows without moving the market.
The SEC's July 29 in-kind order allowed Bitcoin and Ethereum trusts to settle creations with actual coins rather than cash, tightening tracking but requiring APs to source, hold, and manage tax treatment for each basket. For BTC and ETH, that is manageable.
For thin underlyings, borrow might dry up entirely during volatility, forcing creation halts and leaving the ETF trading at a premium until supply returns.
👉Plumbing under load:
APs and market makers can handle higher creation/redemption volume on liquid coins. Their constraint is short availability: when a new ETF launches on a token with thin borrow, APs either demand wider spreads or step back entirely, leaving the fund to trade on cash creations with higher tracking error.
Exchanges can halt trading if reference prices stop updating, a risk Dechert's October analysis stressed even under the faster approval pathway.
The first-mover custody position in the crypto space has become both a revenue engine and a target. US Bancorp revived institutional Bitcoin custody plans, while Citi and State Street are exploring crypto-ETF custody relationships.
Their pitch: do you want 85% of ETF flows dependent on a single counterparty? More ETFs mean higher fees, increased regulatory scrutiny, and a greater risk that a single operational glitch could unsettle the entire category.
Index providers hold quiet power. Generic standards tie eligibility to surveillance agreements and reference indices that satisfy exchange criteria, gating who designs benchmarks. A handful of firms, such as CF Benchmarks, MVIS, and S&P, dominate traditional ETF indexing.
Crypto follows the same pattern of wealth platforms defaulting to indices they recognize, making it harder for new entrants to break through, even with superior methodology.
👉The cull:
ETF.com tracks dozens of closures each year, with funds below $50 million struggling to cover costs and often shutting down within two years.
Seyffart predicts crypto ETF liquidations by late 2026 or early 2027. The most vulnerable: duplicate single-asset funds with high fees, niche index products, and thematic bets where the underlying market moves faster than the ETF wrapper can adapt.
Fee wars accelerate the cull. New Bitcoin ETFs launched in 2024 at 20-25 basis points, undercutting earlier filers by half. As the shelf gets crowded, issuers will cut deeper on flagship products, leaving long-tail funds unable to compete on fees or performance.
Secondary-market mechanics crack first on thin underlyings. When an ETF holds a small-cap token with limited borrow, demand spikes force premiums until APs source enough coins.
If borrow disappears during volatility, the AP stops creating, and the premium persists.
Several early crypto index ETFs saw net redemptions and persistent discounts as investors stuck to brand-name single-asset funds and traded around mispricings.
For BTC, ETH, and SOL, the dynamic reverses. More ETF wrappers deepen spot-derivative connections, tighten spreads, and reinforce their status as core institutional collateral.
Bitwise predicts ETFs will absorb more than 100% of net new supply in these three assets, creating a feedback loop: a bigger ETF complex, a thicker borrow market, tighter spreads, and greater appeal to advisors prohibited from holding coins directly.
What the rules still gate and who decides
Generic standards exclude actively managed, leveraged, and “novel feature” ETPs, which must file individual 19b-4 proposals.
Want to launch a passively managed spot BTC ETF? Seventy-five days. Want 2x leverage with daily resets? Back to the old regime.
SEC Commissioner Caroline Crenshaw warned the standards could flood the market with products that skip individual vetting, creating correlated fragilities that regulators only discover in a crisis.
The rules channel the flood toward the most liquid, most institutionalized corners of crypto.
The stakes are simple: does ETF-palooza consolidate crypto's institutional infrastructure around a few dominant coins and custodians, or broaden access and distribute risk?
For Bitcoin, the flood is a coronation. Every new wrapper adds another venue for institutional capital, another source of borrow, another reason for banks to build custody.
For the long tail, more ETFs mean more legitimacy but also more fragmentation, thinner liquidity per product, and a higher likelihood that any given fund will close.
Issuers bet a few will stick and subsidize the rest. APs bet they can extract spread and borrow fees before someone gets stuck holding an illiquid token during a redemption wave.
Custodians believe concentration pays better than competition, until regulators or clients force diversification.
Generic standards made it easy to launch crypto ETFs. They did not make it easy to keep them alive.
