If the U.S. government shuts down this week, it could put several cryptocurrency exchange-traded funds (ETFs) into a state of uncertainty, just as they are approaching critical approval stages. Funds linked to popular cryptocurrencies such as Solana, trading at $205.23, and Litecoin, trading at $104.38, are among those in jeopardy.
Asset managers have been in constant dialogue with the Securities and Exchange Commission (SEC) over the past several months, actively revising their S-1 registration statements. These updates are typically seen as encouraging signs that the SEC may be getting closer to granting approval. However, should a federal shutdown occur, it would halt much of this progress.
According to an insider familiar with the situation, there is still hope that some approvals could emerge soon if the government remains operational. The applications for spot Solana ETFs are particularly advanced, as multiple rounds of commentary from the SEC have already been addressed, and issuers are expected to file their final S-1 documents shortly.
Recently, the SEC requested that listing exchanges withdraw their 19b-4 filings and resubmit them under the newly approved General Listing Standards. This procedural revision indicates that the agency is preparing to approve fresh financial products linked to cryptocurrencies.
October is poised to be a crucial month for these applications, with Canary Capital’s Litecoin ETF awaiting a response by October 2 and several others facing deadlines between October 10 and 24. If Congress cannot pass a funding bill by midnight this Tuesday, these timelines could be thrown into disarray.
A shutdown would lead to the furlough of a large portion of the federal workforce, including SEC staff. Only essential personnel would remain operational, but it is uncertain whether the review of cryptocurrency ETFs qualifies as “essential.” In previous government shutdowns, processes involving regulatory approvals for financial products were often stalled unless deemed critical for market stability.
There remains a possibility that the SEC has completed much of the necessary paperwork privately, which could allow for approvals to be issued before the deadlines or potentially even during a shutdown. However, this scenario remains speculative.
For now, asset managers and exchanges are left in a holding pattern, closely monitoring the situation in Washington with mounting concern. The competition for ETF approvals, especially for those tied to spot cryptocurrencies, has intensified following the SEC’s unexpected approvals of multiple spot Bitcoin ETFs in 2024. Many firms involved in those approvals are now focusing their efforts on launching products related to alternative cryptocurrencies like Solana and Litecoin, with the aim of broadening the spectrum of regulated investment options in the crypto space.
At this juncture, the outcome seems to rest not only on market fundamentals but on the shifting dynamics of political negotiations in Congress.
