Crypto asset manager , Bitwise, officially filed a registration statement with the U.S. Securities and Exchange Commission (SEC) to launch the first-ever spot XRP Exchange-Traded Fund (ETF). This development follows the approval of Bitcoin and Ethereum ETFs earlier this year. 

However, the SEC's decision on Bitwise's XRP ETF remains uncertain, especially after recent legal disputes at the intersection of Ripple and XRP

Bitwise’s XRP ETF Filing: A Closer Look

On September 30, Bitwise submitted its application to the SEC, aiming to establish a trust that would hold XRP in the same way its Bitcoin and Ethereum ETFs do. 

According to the recent filing, the ETF’s net asset value would be determined by the CME CF Ripple-Dollar Reference Rate. This rate aggregates trade data from major XRP trading platforms to provide accurate pricing. 

The ETF would allow investors to gain exposure to XRP without directly holding the asset, offering a simplified entry point into the cryptocurrency market.

Legal Background: The Ripple Ruling

The fate of Bitwise’s XRP ETF largely hinges on the SEC’s response to a recent ruling regarding Ripple, the company behind XRP. 

In July, 2023, a U.S. court ruled that XRP sales on secondary markets to retail investors are not classified as securities. Worth noting, SEC Chair Gary Gensler has supported only Bitcoin and Ethereum ETFs previously due to regulatory concerns surrounding other cryptocurrencies. 

Despite the favorable ruling for Ripple, the SEC has until October 7, 2024, to decide whether to appeal the decision. If the SEC chooses to challenge the ruling, Bitwise’s chances of obtaining approval for its XRP ETF would drop drastically. 

Alex Thorn, Head of Research at Galaxy Digital, commented:

“The likelihood of this ETF filing succeeding drops to near zero if the SEC does appeal.”

If XRP is eventually classified as a security, Bitwise could face further complications. According to Bitwise’s filing, if the classification occurs, the trust could be forced to liquidate under the Investment Company Act of 1940. 

Bitwise Moves Forward Despite Legal Uncertainty

Bitwise has pressed ahead with its ETF filing despite potential roadblocks. The firm’s decision to file in Delaware, known for its favorable regulatory environment, is strategic. 

Nate Geraci, President of The ETF Store, noted:

“Bitwise is a highly credible crypto-native fund firm. This filing is highly noteworthy and strategic.”

However, the SEC’s history with cryptocurrency ETFs suggests the process will not be quick. Even for Bitcoin and Ethereum, it took months for approval. 

While Bitwise’s XRP filing signals growing interest in crypto ETFs, the SEC’s stance on non-Bitcoin and Ethereum crypto assets remains cautious.

Moreover, some analysts believe that external political factors could influence the SEC’s decision. Bloomberg ETF analyst Eric Balchunas has warned that if Kamala Harris were to win the 2024 presidential election, the chances of an XRP ETF being approved would likely diminish.