Some Sunshine for Crypto Investment Products: SEC Issues First Comprehensive Disclosure Guidance for Crypto ETPs

In another step toward regulatory clarity for crypto investment products, the SEC Division of Corporate Finance staff has issued detailed disclosure guidance on how crypto exchange-traded products (ETPs) should navigate disclosure requirements under federal securities laws. These products enable exposure to digital assets like bitcoin and ether without holding the digital assets directly. ETPs have grown rapidly in popularity following the SEC’s approval of spot bitcoin and ether ETPs. The statement also reflects a broader shift in the SEC’s regulatory approach as it focuses more on ensuring appropriate disclosures than on limiting access to digital assets.

While the federal securities laws have long established disclosure frameworks for operating companies, SPACs, ETPs and other traditional investment vehicles, “crypto” ETPs represent a novel asset class that has historically faced regulatory uncertainty. Drawing from recent registration statements and industry questions, the staff guidance outlines disclosure topics and examples that have emerged as common or expected across filings. For prospective issuers, the statement serves as a valuable reference point toward demystifying how the disclosure rules under Regulation S-K and Regulation S-X apply in the context of crypto markets, helping to clarify regulatory expectations, reduce back-and-forth with the SEC and streamline the path to market.

The staff’s statement highlights how successful crypto ETP issuers have satisfied their disclosure obligations in registration statements and offers insight into how the staff has interpreted common questions posed by market participants.

Recent Milestones in Crypto ETP Regulation

The staff’s statement follows other key regulatory developments that opened the door to crypto asset ETPs in the United States:

• On August 29, 2023, the U.S. Court of Appeals for the D.C. Circuit ruled, in Grayscale Investments, LLC v. SEC, 82 F.4th 1239, 1246 (D.C. Cir. 2023), that the SEC’s rejection of the application of Grayscale to convert its spot bitcoin trust, Grayscale Bitcoin Trust, into the first spot bitcoin ETF was arbitrary and capricious.
• On January 10, 2024, the SEC issued an omnibus order granting accelerated approval of the first U.S.-listed spot bitcoin ETF applications under Section 19(b)(1) of the Exchange Act.
• On May 23, 2024, the SEC issued an omnibus order granting accelerated approval of the first eight U.S.-listed spot ether ETF applications under Section 19(b)(1) of the Exchange Act.

Breaking Down the SEC’s New Crypto ETP Guidance

The staff’s statement highlights the following key areas of disclosure:

• Initial Authorized Participants or Initial Purchasers as Statutory Underwriters. The staff observed crypto asset ETP issuers typically disclose the initial authorized participant or initial purchaser as a statutory underwriter on the IPO registration statement cover page, in line with Item 501(b)(8) of Regulation S-K.
• Prospectus Summary. The typical crypto asset ETP issuer’s prospectus summary includes:
  • A description of the trust, including its investment objective and the index or benchmark it intends to track.
  • An overview of the underlying crypto asset(s) and associated network(s).
  • Disclosure of issuer policies governing the management of the underlying crypto asset(s) and any incidental rights (such as forks or airdrops).
  • A statement explaining that the amount of crypto assets held by the trust per share will decline over time as assets are sold to pay trust fees and expenses.
• Crypto Asset-Specific Risk Factors. A nonexhaustive list of risks commonly disclosed in crypto asset ETP registration statements includes:
  • Risks related to the underlying crypto asset(s) and market.
  • Risks of fraud, manipulation, front-running, wash trading or operational failures on trading platforms.
  • Risks from attacks on the underlying network(s).
  • Risks stemming from concentration of ownership.
  • Risks associated with reduced incentives for miners or validators.
  • Risks related to competing products.
  • Risks from third parties providing services to competitors.
• Core Component of Business Description. Crypto asset ETP issuers typically organize disclosure under the following categories:
  • Underlying crypto asset and associated network, including initial development team; method of minting crypto assets; process for staking, locking and burning; process for validation; and total token supply.
  • Index or benchmark, including a description of how the constituent trading platforms are selected and the composition of an oversight committee.
  • Calculation of net asset value (NAV) and the method used to calculate NAV.
  • The trust’s service providers, and the extent to which issuers are materially reliant on third parties.
  • Custody of the trust’s assets, including material terms of their agreement with custodians and storage policies for private keys.
  • Fees and expenses.
• Description of Securities. The staff noted that issuers should consider including disclosure regarding:
  • Limitations on voting rights.
  • How shareholders will be notified of material amendments to or termination of the trust agreement.
  • Whether shareholder rights may be modified without majority approval.
• Plan of Distribution. Distribution-related disclosures include:
  • Descriptions of the creation and redemption process among the trust, authorized participants, custodians and other service providers, including whether settlement occurs onchain or offchain.
  • Disclosure of when and how the sponsor may suspend creation and redemption orders and how shareholders will be notified.
  • Discussion of how market volatility, trading volume or exchange outages could impact the arbitrage mechanism.
• Management. To satisfy Item 401 of Regulation S-K, crypto asset ETP issuers commonly include disclosure about directors, executive officers and sponsor employees, particularly where the sponsor performs policy-making functions for the issuer. Disclosure may also include fees paid to the sponsor or other third parties performing similar roles.
• Conflicts of Interest. To address Item 404 of Regulation S-K, issuers generally disclose potential conflicts of interest between the trust and its sponsor or affiliated entities.
• Financial Statements. Where a crypto asset ETP is structured as a statutory trust or limited partnership offering multiple series, the staff takes the position that the registrant is the trust or partnership as a whole, but that separate financial statements should also be provided for each individual series.
• Filing Fee Tables. The staff offered guidance on selecting appropriate inline XBRL tags when registering an indeterminate number of crypto asset securities, noting that incorrect tagging may prevent timely filing of prospectus updates under Rule 424(i).

Building on the SEC’s Broader Digital Asset Disclosure Agenda

The July 1 guidance on crypto ETPs is the latest in a series of staff statements aimed at clarifying how digital asset offerings should navigate federal securities laws. As the crypto markets have matured, the SEC has gradually released topic-specific insights to guide issuers in preparing compliant and investor-focused disclosure documents.

For example, on April 10, the SEC staff of the Division of Corporation Finance issued a statement entitled “Offerings and Registrations of Securities in the Crypto Asset Markets” that focused more broadly on crypto asset securities offerings outside the ETP context. Key disclosure themes included:

• Description of Business. Issuers were expected to describe their activities in detail, including network development, token functionality, revenue models, governance structures and product roadmaps.
• Risk Factors. Staff emphasized crypto-specific risks, such as market volatility, legal uncertainty and reliance on decentralized or third-party technology.
• Description of Securities. Issuers were advised to clearly disclose the token’s rights and features, including supply mechanics, staking, voting rights, transfer restrictions and the ability to modify protocol code.
• Management and Governance. Disclosures were expected to identify individuals or entities with decision-making power, even if they do not hold formal titles, highlighting how control and influence operate within the project.
• Financial Statements and Exhibits. Depending on the offering type, financial statements may be required. Where token holder rights are embedded in smart contracts, the staff noted that code files may need to be submitted as exhibits.

In addition to the April guidance, SEC staff has released informal statements regarding fiat-backed stablecoins, meme coins, staking activities and proof-of-work mining activities, further signaling the agency’s intent to create a more uniform and transparent disclosure environment across the digital asset landscape.