SEC Asks the Crowd to Do Its Homework While Prediction Market ETFs Linger in Line 📋

The U.S. Securities and Exchange Commission has opened a public comment period on so-called "novel" exchange-traded funds, seeking feedback on how to regulate products that invest in innovative asset classes or use new investment strategies. The request was announced in a press release and focuses on facilitating innovation in the ETF space while protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.

In the request, the SEC noted that market participants have raised questions about whether novel ETFs whose investment strategy targets assets that are not securities qualify as investment companies under the Investment Company Act, and whether such funds should register as investment companies or be regulated under the Act at all. The Commission is also asking for input on how to handle competitive pressures as new products enter the market. The public comment period will remain open for 60 days following publication in the Federal Register, giving market participants a chance to weigh in before the SEC considers potential regulatory changes.

The timing comes as the Commission continues to weigh prediction market ETFs, which remain unapproved over concerns about the appropriate regulatory framework. The consultation follows a separate recent request by the SEC and the Commodity Futures Trading Commission (CFTC) for public feedback on harmonizing portfolio margin rules across securities and derivatives markets.

Exchange-traded funds have grown rapidly in recent years, with assets under management increasing from about $4 trillion in 2019 to more than $12 trillion at the end of 2025, according to the SEC. Crypto ETF issuers have increasingly expanded beyond simple price-tracking products, introducing funds tied to staking, stablecoin reserves and more specialized strategies. In June, ProShares introduced the GENIUS Money Market ETF, a Treasury-focused fund designed around reserve assets permitted under the GENIUS Act for payment stablecoins, while Grayscale launched the Hyperliquid Staking ETP, offering exposure to HYPE ($HYPE) while seeking to generate staking rewards.

Bitcoin ($BTC) investment products are also becoming more specialized. BlackRock proposed an options-based Bitcoin income ETF in January, followed by Goldman Sachs in April with a fund combining spot Bitcoin products and covered-call strategies. Earlier this month, Franklin Templeton proposed two ETFs that would systematically reinvest stock dividends into Bitcoin-linked investments, combining U.S. equities with a rules-based Bitcoin allocation through instruments including exchange-traded products, futures, options and Bitcoin-backed depositary receipts. In January, Bitwise launched an actively managed ETF pairing Bitcoin with gold, precious metals and mining equities.