US SEC slams brakes on prediction market ETF approval..."It was the same with Bitcoin"

▲ Prediction Market/ChatGPT Generated Image

The U.S. Securities and Exchange Commission (SEC) has put on hold the launch of new types of ETFs, including prediction market ETFs, and has opened a public comment period. This is a procedure to examine whether products that incorporate event contracts linked to specific events, such as election results, can be offered to investors through institutional brokerage accounts.

Cointelegraph reported on May 21 (local time) that the SEC is delaying the launch of new ETF products that offer prediction market-style event contracts. SEC Commissioner Paul Atkins stated in a Wednesday statement that “new products raise new questions,” and directed SEC staff to seek public input on how to handle these applications.

Bitwise applied in February for a series of prediction market ETFs under the PredictionShares brand, which track U.S. election results. Roundhill Investments and GraniteShares also submitted prediction market ETF applications in the same month. However, the SEC has withheld decisions on these applications and continues to review the product structures and market impact.

Prediction market ETFs are products designed to allow investors direct exposure to binary event contracts through traditional securities brokerage accounts. The article explained that this trend is similar to the institutionalization process of cryptocurrencies through Bitcoin (BTC) and Ethereum (ETH) ETFs. Prediction markets have emerged as one of the most notable use cases in the crypto space over the past 18 months, consistently recording over $15 billion in monthly trading volume across various sectors including sports, elections, corporate earnings, and cultural events.

Bloomberg ETF analyst Eric Balchunas assessed that the SEC is clearly grappling with how to treat a new asset class. He explained that the SEC is examining the issue of prediction market ETFs similarly to how it looked at Bitcoin spot ETFs before approving them in January 2024, and that the SEC wants to gain sufficient confidence before fully allowing such products.

This decision to postpone comes as prediction market platforms like Kalshi face lawsuits in several U.S. state courts. While prediction market products are expected to broaden investor access, regulators are taking a cautious approach to how contracts linked to event outcomes are handled within the traditional ETF framework.

Commissioner Atkins praised ETFs as a major driver of innovation in the securities market. He stated that ETFs have fostered capital formation and expanded investor choices, and ETF assets have tripled since 2019. Cointelegraph reported that the SEC has shown a more flexible stance on approving innovative products in recent years, and the method of reviewing applications on a case-by-case basis changed with the introduction of a general listing standard model last September.

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