Crypto ETFs were ready to launch, then the US government shut down — here's what could happen next

The U.S. government has officially been shut down just as dozens of different types of cryptocurrency exchange-traded funds were primed to get the Securities and Exchange Commission's sign-off. 

One source who spoke with The Block called the situation "brutal."

The SEC is weighing heaps of crypto ETF proposals from ones tracking DOGE to XRP to LTC. Those had been filed over the past year by firms in the wake of a friendlier regulatory environment for digital assets under the Trump administration.

But now, the government shutdown is kind of sending that all into an uncertain tailspin. On Tuesday night, Congress failed to reach a deal on funding, with no end in sight on when it could reopen.

"The short answer is we don't know for sure," a person familiar with the process said in an interview. "The normal, sane answer during regular shutdowns is that the SEC went home today."

The last time the government shut down was in 2018 during the first Trump administration, which was also the longest shutdown at 34 days. Others have spanned from just a few days to a couple of weeks, NPR reported on Wednesday.

Unless SEC Chairman Paul Atkins and the agency's division directors gave staff guidance to hustle certain short-term items across the finish line, the expectation is that the SEC is not working on crypto ETFs' registration statements until the government reopens, they said.

"There's some small chance that Paul Atkins is so positively inclined towards these crypto products that he has created an exception to get them to market even during a shutdown," they said, adding that they wouldn't bet on that.

Due to a lapse in appropriations, the SEC is currently operating in accordance with the agency's plan for operating during a shutdown, an SEC spokesperson told The Block.

The SEC probably won't be taking action that would lead to crypto ETFs being allowed to list and trade. With that, the agency is not likely to issue comment letters for ETFs or allow registration statements to go effective, but a source familiar with the process said it's not clear whether the agency might still be working on the funds in the background.

One deadline is coming up on Thursday for the Canary Litecoin ETF. However, those deadlines don't hold as much weight because they were tied to deadlines associated with the 19b-4 process, which has been overall deemed moot. Under a previous regulatory setup, an exchange had to file what's called a 19b-4 form for crypto ETFs, triggering a review period of up to 240 days.

However, last month, the SEC approved listing standards proposed by three exchanges, asking the agency to change a rule governing the trading and listing of commodity-based trust shares, which sets out specific requirements to have certain shares listed on their exchanges. The approval means that dozens of crypto ETF applications could go live soon, without needing to go through the 19b-4 process; therefore, it pivotally reduces the timeline for those funds to begin trading.

What could happen after the government reopens

If crypto ETFs meet the generic listing standards, the process for getting the SEC's sign-off is different than when spot bitcoin and ethereum funds were approved a year earlier, with one source saying that the approval process is "essentially almost automatic."

One source said the agency could batch single-product crypto ETFs together this month and into November.

The emphasis is now on the registration statements, and those do not have any imposed timelines, one of the sources said.

"I can tell you that Corp Fin [SEC's Division of Corporation Finance] is actively reviewing these, and you'll see a lot of filings and amendments," they said.

As for when registration statements are allowed to go effective, that's up to the Division of Corporation Finance, they said.

"Based on how Solana is going, where you're seeing everyone file on the same day, I think it's reasonable to conclude that they're lining everyone up, meaning everyone's kind of getting the same schedule," they said.

But for token ETF filings that are made on different days, that could have a different approach, they added.

Updated at 6 p.m. UTC on Oct 1 to include comments from an SEC spokesperson

Updated at 6:30 p.m. UTC on Oct 1 to include more details on the shutdown