Bitwise Asset Management has taken a significant step towards expanding its cryptocurrency investment offerings by filing a registration statement with the U.S. Securities and Exchange Commission (SEC) for a new exchange-traded fund (ETF) focused on XRP, the digital asset associated with Ripple Labs. 

In the S-1 filing submitted on Wednesday, Bitwise outlined its plans for the Spot XRP ETF, highlighting that BNY Mellon will serve as the trust’s administrator. At the same time, Coinbase Custody Trust Company, LLC, will act as the custodian. This strategic partnership underscores Bitwise’s commitment to leveraging established financial institutions to enhance the credibility and security of its ETF offering.

Source: SEC

“The Trust’s investment objective is to seek to provide exposure to the value of XRP held by the Trust, less the expenses of the Trust’s operations and other liabilities,” the registration statement reads. 

The statement objective aligns with Bitwise’s broader strategy to offer diversified investment vehicles that cater to the growing demand for cryptocurrency exposure among institutional and retail investors.

SEC’s XRP Classification Battle Threatens ETF

Bitwise’s recent filing addresses the disputed classification of XRP as a security. The company argues that XRP is a decentralized digital asset recorded on a distributed ledger, exempting it from U.S. federal securities laws. 

“XRP is a decentralized digital asset and ownership of it is reflected on a decentralized ledger. Additionally, XRP is not a security, and is thus not subject to the protections of the U.S. federal securities laws,” the statement clarifies.

However, the Securities and Exchange Commission (SEC) challenges this view. The SEC is currently in a legal battle with Ripple Labs, XRP’s issuer, accusing it of raising $1.3 billion by selling XRP as an unregistered security. This ongoing litigation creates significant uncertainties for Bitwise’s proposed Exchange-Traded Fund (ETF), as detailed in their filing.

The document warns, “If XRP is found by a court or other regulatory body to be a security, the Trust could be considered an unregistered ‘investment company’ under the Investment Company Act of 1940, which could necessitate the Trust’s liquidation under the terms of the Trust Agreement.”

 

Bitwise Optimistic on XRP ETF Despite Regulatory Hurdles

Despite regulatory challenges, Bitwise remains confident in XRP’s potential and the broader cryptocurrency market. The company’s recent application for a Spot XRP ETF, following an earlier submission to Delaware’s Division of Corporations, demonstrates its proactive strategy to obtain necessary approvals.

Bitwise CEO Hunter Horsley emphasized that XRP has been a desirable crypto asset for over a decade. He added that the firm has spent more than six years developing investment vehicles to capitalize on emerging opportunities within the cryptocurrency sector.

Furthermore, Ripple CEO Brad Garlinghouse highlighted the increasing integration of digital assets into traditional financial systems. He noted that this development reflects growing trust and adoption of cryptocurrencies like XRP, signaling the crypto market’s ongoing maturation. Garlinghouse believes that this progress is just the beginning of significant advancements in the industry.

The Broader Crypto ETF Landscape

Bitwise is introducing its Spot XRP ETF at a time when the SEC has started approving various cryptocurrency ETFs, indicating a growing acceptance of digital assets in mainstream finance. In January, the SEC authorized several spot Bitcoin ETFs from leading companies like BlackRock, Grayscale, and Fidelity. Following this, the agency approved eight Ethereum ETFs, expanding the range of regulated crypto investment options available to investors.

These ETF approvals have been essential in recognizing cryptocurrencies as legitimate investment assets, attracting significant institutional investments, and enhancing market liquidity. Bitwise’s Spot XRP ETF aims to leverage this expanding market by providing investors with a regulated way to invest in XRP without directly holding the cryptocurrency.

However, the Spot XRP ETF faces potential obstacles. The ongoing legal dispute between the SEC and Ripple could influence the ETF’s approval and future operations. If the court rules that XRP is a security, Bitwise may need to revise its ETF strategy or face the possible liquidation of the trust, as stated in their filings.