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Crypto Law/Level III · Tokens and securities law/3.2 US rules in motion/Lesson 7

Spot bitcoin and ether ETFs

How spot bitcoin and ether exchange-traded products reached US exchanges after a court defeat for the SEC, how the 2025 rule changes widened the door, and what a holder of their shares does and does not own.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Cheapest way to hold: buy bitcoin or ether directly and keep it in self-custody, which carries no annual sponsor fee or custodian dependency; the catch is personal key security, and every sale remains a reportable taxable disposal.
  2. Holding a spot ETP inside a traditional or Roth IRA defers tax on gains, or exempts qualified Roth withdrawals; annual IRA contribution limits and early-withdrawal penalties are the catch.
  3. In a taxable account, compare sponsor fees in each prospectus, since they compound yearly, and hold shares over one year so gains qualify for long-term rates under 26 U.S.C. 1(h), which can be 0% at lower taxable incomes.
  4. Spot ETPs are not registered under the Investment Company Act of 1940, and ordinary holders cannot redeem for coins; in-kind redemption, approved 29 July 2025, is limited to authorized participants. Shares are reported on Form 1099-B.

MaterialsThe SEC approval orders for spot bitcoin (Release No. 34-99306, 10 January 2024) and ether (Release No. 34-100224, 23 May 2024) productsThe SEC order approving generic listing standards for Commodity-Based Trust Shares (Release No. 34-103995, 17 September 2025)The prospectus of any one spot crypto ETP, opened to its sections on the custodian, the sponsor’s fee and creation and redemption

Wonder

  1. If I buy shares in a spot bitcoin ETF, do I own any bitcoin?
  2. Why did the SEC refuse these products for years and then approve them?
  3. Are these funds protected like ordinary mutual funds?

Explore

  1. A spot bitcoin or ether exchange-traded product (ETP), commonly called an ETF, is a trust that holds the coins themselves and issues shares that trade on a stock exchange. Investors own shares in the trust, not coins. These trusts are listed under exchange rules for ‘Commodity-Based Trust Shares’ and are not registered as investment companies under the Investment Company Act of 1940, so the protections of that Act, which apply to mutual funds, do not apply. The shares are sold under registration statements filed under the Securities Act of 1933, so the sponsor must provide prospectus disclosure. A futures-based fund, by contrast, holds derivatives rather than coins.
  2. Listing a new kind of product required the exchange to change its rules, which needs SEC approval under section 19(b) of the Securities Exchange Act of 1934. According to Chair Gary Gensler, from 2018 through March 2023 the Commission disapproved more than 20 such filings for spot bitcoin products. One disapproval concerned Grayscale’s plan to convert its bitcoin trust into an ETP. In Grayscale Investments, LLC v. SEC (D.C. Cir., No. 22-1142), decided on 29 August 2023, the court held that the SEC had failed to explain its reasoning adequately, vacated the disapproval and sent the matter back to the agency.
  3. On 10 January 2024 the SEC approved, in a single order covering eleven exchange filings (Release No. 34-99306), the listing of a group of spot bitcoin ETPs. Gensler said the action was ‘cabined to ETPs holding one non-security commodity, bitcoin’, signalled nothing about other crypto assets, and that the SEC is ‘merit neutral’, so approval is not an endorsement. The court ruling, he said, had changed the circumstances. On 23 May 2024 the SEC approved rule changes for spot ether ETPs (Release No. 34-100224). Trading in those began in July 2024, after the funds’ registration statements took effect.
  4. Two 2025 orders changed how these products work. On 29 July 2025 the SEC let bitcoin and ether trusts, including the iShares, Fidelity and Bitwise funds, create and redeem shares ‘in kind’ with authorized participants, the large firms that deliver or receive the coins; until then they dealt only in cash. On 17 September 2025 it approved generic listing standards for Nasdaq, Cboe BZX and NYSE Arca. An exchange may now list such a trust without a separate rule filing if each commodity trades on an Intermarket Surveillance Group market, underlies a futures contract on a designated contract market for at least six months, or initially backs an ETF with at least 40 percent exposure.
  5. The legal trade-off for a holder is indirect ownership. Ordinary shareholders cannot usually ask for coins; in-kind redemptions are for authorized participants. The trust’s coins sit with a custodian named in the prospectus, so the holder depends on that custodian and on the trust documents rather than on private keys of their own (lesson 4.1.1). The sponsor charges an annual fee, and the market price of a share can drift from the value of the coins it represents. In exchange, the shares sit in an ordinary brokerage or retirement account and are covered by securities-law disclosure duties and antifraud rules.
  6. The range of products kept widening after the generic standards. On 12 June 2026, for example, the SEC approved NYSE Arca’s listing of an actively managed crypto fund expected to hold between five and fifteen crypto assets, and the exchanges have amended their generic standards several times since. Each new product still needs its own registration statement, and some, such as a fund holding a liquid staking token, have gone into separate SEC approval proceedings. A practical check: open the fund’s prospectus and find the custodian, the sponsor’s fee, what the trust may hold, whether it stakes, and how shares are created and redeemed; then compare its market price with its net asset value.

Key facts

  • In Grayscale Investments, LLC v. SEC, decided 29 August 2023, the D.C. Circuit vacated the SEC’s disapproval of Grayscale’s bitcoin ETP conversion.
  • The SEC approved exchange rule changes for spot bitcoin ETPs on 10 January 2024 in Release No. 34-99306.
  • The SEC approved exchange rule changes for spot ether ETPs on 23 May 2024 in Release No. 34-100224.
  • On 29 July 2025 the SEC approved in-kind creations and redemptions for spot bitcoin and ether trusts.
  • On 17 September 2025 the SEC approved generic listing standards that let Nasdaq, Cboe BZX and NYSE Arca list qualifying Commodity-Based Trust Shares without a separate rule filing.
  • Spot crypto trusts listed as Commodity-Based Trust Shares are not registered as investment companies under the Investment Company Act of 1940.

Exercise nine, six, three, one

9CollectList up to 9 ways you hold, or could hold, exposure to bitcoin or ether, such as coins on an exchange, coins in your own wallet, a spot ETP, a futures fund or a company’s shares (some lists are shorter).
6ClusterSort them into 6 categories: direct self-custody, coins held by a platform for you, spot ETP shares, futures-based funds, shares of companies that hold coins, and other products.
3DistillReduce the 6 categories to 3 groups: you hold the coins, someone holds coins for you under a contract, and you hold a security whose value tracks coins.
1CrystallizeWrite 1 sentence explaining, in your own words, what a spot bitcoin ETP shareholder owns and what they give up compared with holding their own keys.

Fact check

Dates, figures and claims checked against the published sources listed below.

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