The XRP ETF filing: A sign of regulatory progress or wishful thinking?

Today, enjoy the Forward Guidance newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. Subscribe to the Forward Guidance newsletter.

New US spot crypto ETF plans take shape

The spot bitcoin ETFs hitting US exchanges was the talk of the town in January (not to mention the months of anticipation after BlackRock jumped into that race). 

Though ether ETFs haven’t seen as much investor interest (and weren’t expected to) since their July launches, that was deemed another milestone. Not to mention the iShares Ethereum Trust fairly quickly gathered $1 billion in assets.

As institutions wade deeper into crypto, ETFs have proven to be a gateway into the space. All this to say: New crypto ETF filings are pretty significant, particularly ones that would directly hold an asset not yet available in such a wrapper.

But for them to really change the game, of course, they need to be approved.

That preamble sets up what we saw today: Crypto-focused asset manager Bitwise filed for an XRP ETF. Canary Capital also appeared to file for a similar product, the Delaware Division of Corporation website shows.

Bitwise decided to put out a press release — not exactly common after an S-1 filing. In it, the firm mentions XRP’s role in facilitating cross-border payments and remittances — adding that the XRP Ledger public blockchain typically processes transactions in seconds, with fees under a cent.

XRP’s market capitalization of roughly $33 billion means it ranks seventh among crypto tokens.

“We believe blockchains will usher in new, apolitical monetary assets and permissionless applications for the 21st century,” Bitwise CEO Hunter Horsley said in a statement. 

Last month I wrote about how Grayscale’s XRP Trust launch didn’t necessarily mean such an ETF was coming. Sure, Grayscale has an intended product lifecycle that ends in an ETF listing; but the SEC has to allow such a conversion for that to be fulfilled.

Some have previously told Blockworks that spot crypto ETF approvals in the SEC (outside of BTC and ETH) might be tough given the precedent of the regulator wanting to first see a regulated futures market. None exist for XRP (or solana).

But the plans laid out from Bitwise and Canary seem to advance the growing perception that the US crypto regulatory winds are changing. Then again, it could just be wishful thinking.

While Bitwise declined to comment on that, a Canary Capital spokesperson told me there are indeed “encouraging signs of a more flexible regulatory environment.”

The representative added: “This year’s approval of the spot Ethereum ETFs, following the earlier spot bitcoin ETF approvals, signals positive momentum, especially considering how long it took for ETH futures products to be approved. We’re optimistic about the next phase of developments in the space.”

Neena Mishra, director of ETF research at Zacks Investment Research, said Bitwise is preparing for an XRP ETF in case Trump wins the presidency. The former president did, after all, promise to “fire” SEC Chair Gary Gensler if elected. 

“If Harris wins and Gensler remains SEC chair, the filing has no chance of approval, despite [Harris’s] recent comments about supporting digital assets,” Mishra argued.

Mishra’s thoughts are similar to ones expressed by VanEck’s Matthew Sigel after his firm filed for a solana ETF in June. He had noted that filing was essentially a bet on a Trump victory in November, given the Republican nominee’s rhetoric in recent months.

Sigel did not want to comment on the latest Bitwise S-1 today, noting only: “We like SOL a lot more than XRP.” 

Bitwise’s filing also comes as crypto enthusiasts monitor whether the SEC will appeal the ruling in the regulator’s legal battle with Ripple Labs. The court ordered Ripple to pay a $125 million penalty — far below the $2 billion the SEC had sought.

Judge Analisa Torres last year ruled that while Ripple’s institutional sales of XRP counted as an unregistered securities offering, programmatic sales did not. An appeal could delay clarity on XRP’s status, possibly impacting planned ETFs that hold the asset.

Ultimately, ETF issuers want to be ready for any scenario — particularly given the edge asset managers often gain from launching a product first, Mishra noted.

“Bitwise, well known for its crypto expertise, will likely launch this product in the future,” she explained to me. “Politics will determine whether this happens soon or in a few years.” 

— Ben Strack 

0 

The number of times crypto was mentioned during last night’s vice presidential debate. 

We can’t say we were terribly surprised, but given Kamala Harris and Donald Trump do not have any more debates scheduled before Nov. 5, last night appeared to be a final pre-election opportunity to hear digital asset regulation discussed on a national stage. 

Still, there is plenty of time left for Trump and/or Harris — plus their running mates — to share more information about their respective crypto platforms (or stop into an NYC bar and pay with bitcoin). 

More employment data boosts odds of a 25bps cut 

Private sector employers added 143,000 jobs in September, up from 103,000 in August, ADP reported Wednesday. This beat the forecast of 128,000 new positions. 

Hospitality led with 34,000 new jobs. Construction and education and health services posted 26,000 and 24,000 new positions, respectively. 

The report noted too that wage growth is slowing, which we also saw in yesterday’s JOLTS report. ADP said the 12-month pay increase for employees who had not left their position was 4.7%, compared to 4.8% in August. 

The JOLTS report showed that layoffs and discharges are leading quits on a percentage basis, but job openings are still up. Job openings — as a percentage of the overall US labor force — now sit at 4.77%, similar to where we were prior to the pandemic. 

This data comes after Fed Chair Jerome Powell on Monday said the committee is not looking to rush interest rate cuts. The lowering cycle will continue, he added, “over time.” 

Labor market health, as we’ve discussed in this newsletter before, is a top concern for Powell as he attempts a soft landing. 

“We do not believe that we need to see further cooling in labor market conditions to achieve 2% inflation,” he said Monday. 

Federal funds futures markets now show a 63% chance of a 25-basis point cut in November, according to CME Group data. 

Powell is going to want to see annual wage growth closer to the 3% to 3.5% level, which he’s said in the past is consistent with a 2% inflation rate. Still, I’d tend to agree with the futures markets here; these latest two reports are not convincing me that we’ll see another aggressive cut next month. 

— Casey Wagner

Latest CME Group launch surpasses prior crypto product debuts  

CME Group’s new Bitcoin Friday futures (BFF) are so far a smash hit — at least when considering day-one reception compared to its previously launched crypto derivatives offerings.

Sized at one-fiftieth of a bitcoin, the new contracts are cash-settled to the CME CF Bitcoin Reference Rate (New York Variant) at 4 pm ET every Friday. New contracts are listed every Thursday at 6 pm ET, and market participants can trade the nearest two Fridays at any given point.

CME Group noted Tuesday that 31,498 BFF contracts traded across two different contract weeks during the Sept. 30 debut.

A company spokesperson put this number into perspective. The highest-volume CME crypto launch prior to yesterday was micro bitcoin futures, which traded about 7,400 contracts when introduced in May 2021.

A majority of the volume — at 69% — came from investors in the Europe, Middle East and Africa regions, CME data shows. Those in North America and the Asia Pacific regions made up 19% and 12% of the volume, respectively.

The derivatives marketplace publicly plotted out the launch of these futures contracts in August. The concept was simple: to offer smaller-sized contracts in an effort to attract participation from more types of investors.

Institutions and retail traders alike “will be able to more accurately fine-tune their bitcoin exposure on a regulated exchange,” CME crypto products head Giovanni Vicioso said in a statement at the time. 

Galaxy and Marex made the first trade of such contracts on Sept. 29, CME noted on Tuesday.

Marex’s co-head of derivatives engine, Harry Benchimol, said the weekly contracts are an efficient hedging tool and are closer to the perpetuals offered on crypto platforms.   

Thus, he noted, “CME Group is closing the gap between traditional financial and crypto markets.”

Interest is coming “both on screen and in the block market,” Vicioso told Blockworks Wednesday.  

This seems to give CME Group plenty of incentive to continue building out its crypto product lineup. It’ll be interesting to see what it comes up with next. 

— Ben Strack 

Bulletin Board 

• A federal appeals court has cleared prediction market platform Kalshi to reopen its US Congressional election betting markets. The ruling comes three weeks after a different appellate judge sided with the CFTC and issued a temporary freeze on the markets. 
• Dockworkers from 36 ports on the East Coast continued their strike Wednesday as pressure mounts for President Biden to invoke the Taft-Hartley Act and intervene. Biden has said he will not step in. 
• We are a week away from Permissionless III! Get your tickets now to hear Felix host  Forward Guidance live. (Word to the wise, we hear prices are increasing soon!)

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.