Industry Group Urges SEC to Strip 'ETF' Label From Spot Crypto Products

The Mutual Fund Directors Forum (MFDF) is challenging the use of the 'ETF' designation for financial products that fall outside the jurisdiction of the Investment Company Act of 1940. The industry group has filed a formal comment with the Securities and Exchange Commission (SEC), arguing that the label should be restricted to products governed by the '40 Act to prevent investor confusion.

This push specifically targets spot cryptocurrency products, such as Bitcoin and Ether funds. Because these assets are treated as commodities rather than securities under U.S. law, they are generally not regulated by the '40 Act. According to the MFDF, the 'ETF' title implies a level of regulatory oversight and the presence of independent fund boards that these commodity-based products do not possess. Carolyn McPhillips, president of the MFDF, stated that while these products could be called 'exchange-traded products' or other terms, maintaining that distinction is critical for shareholders.

The Regulatory Gap

The debate follows a recent request from the SEC for public comment on 'novel strategies' for ETFs, including those involving innovative asset classes. This opening allowed various industry groups to challenge the current definition of an ETF. Beyond crypto, other groups have raised concerns about the expansion of the ETF wrapper. FCLTGlobal submitted a comment to the SEC arguing against extending the designation to funds built around event contracts and prediction markets, which the group described as zero-sum wagers.

Why the Label Matters

The 'ETF' brand carries significant weight in the financial markets, signaling to investors a specific framework of transparency, governance, and protection. If the SEC agrees that non-'40 Act products are misleadingly labeled, it could trigger a massive rebranding effort. Spot crypto products—which have seen record-breaking success since early 2024—might be forced to transition to the 'Exchange-Traded Product' (ETP) designation.

Such a shift would create a formal regulatory divide between traditional securities-based ETFs and commodity-based crypto products. This distinction could alter investor perception regarding the safety and oversight of digital asset funds, potentially separating them from the perceived stability of traditional mutual fund structures.

What's Next

The SEC must now weigh these industry objections against the current market reality of spot crypto products. While the MFDF and FCLTGlobal have made their case for stricter nomenclature, it remains to be seen if the commission will mandate a name change for existing products or simply apply stricter guidelines to future filings. For now, the industry is watching to see if the SEC will prioritize the technical regulatory definition of an ETF over the established market terminology.