SEC delay on prediction markets ETFs has echoes of bitcoin fund battle

Prediction markets ETFs may soon be coming to retail investors and even into retirement plans, but maybe just not as fast as anticipated.

The Securities and Exchange Commission during the second Trump administration has sought to distinguish itself from Biden era regulators with what it calls a move away from the “regulatory creep” that it says has held back markets and innovation. But it caught some in the financial industry off guard on Tuesday when it delayed the launch of 24 prediction markets ETFs, saying it needed more time to study the products before they were released to investors.

Roundhill Investments, Bitwise, and GraniteShares had all filed with the SEC in February to launch funds tied to prediction markets covering elections, economic data, and other real-world events. Under SEC rules, ETFs are automatically effective 75 days after filing unless otherwise halted by the SEC. That 75-day window was due to expire last week. The SEC’s intervention should not be surprising, according to ETF experts, even if the SEC under the Trump administration is focused on steps to ease market access, as well as less aggressive oversight of novel financial products, such as in the crypto space.

Prediction markets ETFs do represent a new kind of regulatory challenge. Unlike traditional ETFs, these investments are tied to event contracts and essentially place bets on real-world events. Some of the most notable, but also controversial, contracts on predictions markets like Kalshi are the ones related to politics, such as election results, a focus for the ETFs.

The prediction markets ETF delay does evoke memories of the years it took for spot bitcoin ETFs to be approved by the SEC. But ETF experts say the delay is most likely to be temporary as the agency looks for more information from the issuers about how the funds will work. “With any kind of novel exposure in the ETF, there will always be some last minute hiccups,” said Todd Sohn, chief ETF strategist as Strategas Securities. “You could replace any new type of asset class and ETF. It’s usually the case where things get pushed back a bit,” he said.

“We recognize that innovative ETF products often require additional review, particularly around liquidity, market structure, and investor protections. Our priority is making sure investors are comfortable with how these products work and understand the role they can play within a regulated ETF structure,” said GraniteShares CEO Will Rhind in a statement to CNBC.

There is reason for regulators to take it slow. A novel private credit ETF that State Street launched last year ran into multiple SEC hurdles post-launch which ETF experts say should have been part of the pre-approval review process.

But the most obvious comparison is spot bitcoin ETFs, which faced years of SEC resistance before finally gaining approval in January 2024. Regulators spent months wrestling with concerns about market manipulation and whether the underlying crypto markets were mature…