MW How a few new crypto ETFs slipped through the cracks of the government shutdown

By Frances Yue

A cryptocurrency called Hedera jumped over 7% on Tuesday after the first exchange-traded fund investing directly in the coin was launched.

To many people's surprise, a few exchange-traded funds investing in some lesser-known cryptocurrencies were launched in the U.S. on Tuesday, despite a government shutdown.

The surprise stemmed from the fact that the U.S. Securities and Exchange Commission has been limited to essential tasks during the government shutdown, which began on Oct. 1. Reviewing or approving ETF applications is not considered one of those essential tasks, according to the SEC's plan for functioning during a government shutdown.

Yet a pair of ETFs investing in Litecoin LTCC and Hedera HBR debuted Tuesday, both issued by a relatively small asset manager Canary Capital. Its founder explained to MarketWatch that the firm only needed to replace a few select words from its proposal to make the launch happen, based on the firm's understanding of the SEC's latest guidance.

The amended registration statement of the Canary Litecoin and Hedera ETFs scrubbed the language which prevents it from automatically becoming effective after 20 days, and added that "this registration statement shall hereafter become effective in accordance with the provisions of section 8(a) of the Securities Act of 1933," Steven McClurg, chief executive and founder at Canary Capital, confirmed to MarketWatch.

In other words, making those changes, even if temporary, paved the way for his two new ETFs to see the light of day, despite the government shutdown.

McClurg said his firm already received substantial revisions and comments from the SEC for both of their Hedera and Litecoin ETFs' applications.

While the SEC could ask for amendments later on, "we have gone back and forth to the SEC several times on comments and proposed changes to the prospectus, going all the way back to a year ago," McClurg said. "I speculate that it [the applications] probably would have been approved if there wasn't a government shutdown early in October," he added.

The launches marked the first ETFs of their kind. Also Tuesday, crypto asset manager Bitwise introduced its Solana ETF, while Grayscale is set to convert its closed-end Solana Trust into an ETF on Wednesday.

Hedera jumped over 7% on Tuesday, while Litecoin (LTCUSD) and Solana (SOLUSD) fell.

Not without risks

"This will be a significant step forward for crypto ETFs," as it marks the first time that ETFs investing in some smaller cryptocurrencies have been launched, said Roxanna Islam, head of sector and industry research at VettaFi.

She also said the move to skip over the SEC review is risky, as the SEC could later ask for amendments after it reopens.

Prior to this year, only bitcoin and ether ETFs were available to U.S. investors. However, as the regulatory environment for crypto has become more favorable under the Trump administration, asset managers have been seeking to list ETFs investing in lesser-known cryptocurrencies, ranging from Solana and XRP (XRPUSD) to dogecoin (DOGEUSD), Aptos (APTUSD) and SEI (SEIUSD).

"I believe we'll see a segment of investors dive right in, but many investors also might take a wait-and-see approach for a larger, more visible (and less uncertain) wave of approvals after the SEC reopens," Islam said in emailed comments to MarketWatch.

The SEC originally faced an Oct. 10 deadline to make a decision on the applications of Solana ETFs filed by larger firms such as Fidelity, Franklin Templeton and Invesco, but the government shutdown has thrown that timeline into limbo.

Read: Crypto bulls were amped for potential solana ETF approvals this week. But the government shutdown threw it into limbo.

However, Bitwise and Canary were able to move ahead by using an SEC rule that lets companies speed up the process. Normally, when a firm files to launch an ETF, it adds a clause called a "delaying amendment" that pauses approval so the SEC has time to review the filing. By removing that clause, the firms allowed their registrations to automatically take effect after 20 days.

An SEC spokesperson declined to comment for this article when MarketWatch reached out, instead pointing to the agency's guidance during a government shutdown.

According to the SEC's statement, prospective issuers may file amendments to their registration statement to remove the delaying statements "as a technical matter," according to a statement dated Oct. 9. However, the companies "should consider carefully the risks of this course of action and should evaluate their particular facts and circumstances before doing so," the agency said.

"As an issuer, you need to march forward with your business plans despite the government shutdown," Matthew Hougan, chief investment officer at Bitwise Asset Management, wrote to MarketWatch in emailed comments. He noted that the firm has worked with the SEC on its Solana ETF for many months, even before the government shutdown.

"Based on our engagement with the commission on GSOL [Grayscale Solana Trust] prior to the government shutdown, we're confident in going to market tomorrow," Craig Salm, chief legal officer at Grayscale wrote to MarketWatch via email.

Following the ETF launches on Tuesday, VanEck also revised its registration statement for its Solana ETF to remove the delaying amendment, so it could automatically take effect after 20 days.

Still, Islam said she expected the majority of issuers will wait until the SEC reopens to avoid any risks.

Bitcoin (BTCUSD) dipped 0.5% to $113,843 on Tuesday afternoon. U.S. stocks ended higher, with the Dow Jones Industrial Average DJIA up 0.3%. The S&P 500 SPX finished up 0.2% and the Nasdaq Composite COMP closed 0.8% higher.

-Frances Yue

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October 28, 2025 18:14 ET (22:14 GMT)

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