Ripple ETF: Could it happen? Bitwise’s filing faces an uncertain path due to regulatory concerns

The S-1 filing of Bitwise asset management for a planned XRP exchange-traded product (ETP) has sparked debate among investors and analysts over its possible approval by the US Securities and Exchange Commission (SEC).

What happened: The proposal aims to create a fund that holds directly XRP/USDwhich gives investors access to the digital asset.

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

Nate GeraciPresident of the ETF shopnoted the significance of Bitwise’s filing in the current crypto market context. “Bitwise positioning for an XRP ETF filing is extremely noteworthy in my opinion,” he tweeted.

Geraci further emphasized that Bitwise, a credible crypto-native fund company, is not known for taking arbitrary steps.

“This is strategic,” he added, suggesting the company’s filing could be influenced by larger market dynamics, including the outcome of the upcoming election in November.

However, this proposed ETF still faces significant obstacles.

Alex ThornHead of research at galaxy Researchpointed out that a critical point is approaching in the legal battle between Ripple and the SEC.

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

Thorn noted that if the SEC appealed, the likelihood of the ETF application being successful would drop to “near zero,” adding, “I would be very surprised if they didn’t appeal.”

What adds to the complexity Bloomberg‘s Senior ETF Analyst Eric Balchunas brought the political dimension into the debate. He likened the filing to a “call option on a Trump victory” and suggested that a change in political leadership could change the regulatory landscape under which such crypto products are assessed.

“If Harris wins, there is no way these will be approved and the ‘call’ will expire worthless,” Balchunas commented, noting how volatile the regulatory environment could be, especially given the possible changes at the top of the SEC.

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Why it matters: Despite these challenges, Bitwise’s filing is noteworthy.

The San Francisco-based asset manager known for its various crypto-focused investment products has expanded its digital asset offerings.

The company 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 the rising popularity of crypto ETFs, which have attracted billions of dollars in inflows this year.

However, the SEC’s history with Ripple plays a large role in this application. XRP, the digital asset underlying the XRP Ledger, was developed by Ripple, a fintech company that aims 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 won a partial victory in court in 2023 when a judge ruled that programmatic sales of XRP to retail investors did not qualify as securities, the ruling also found that $728 million worth of institutional sales actually constituted unregistered securities .

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

Bitwise CEO Hunter Horsley was optimistic despite these hurdles and stated: “We at Bitwise believe that blockchains will usher in new, apolitical investments and permissionless applications for the 21st century.”

What’s next?: The broader implications of this filing and related policy and regulatory developments will be key points of discussion at the upcoming Benzinga Future of Digital Assets event on November 19th.

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