U.S. Securities and Exchange Commission (SEC) has postponed its decision on Canary Capital’s proposed spot Litecoin (LTC) exchange-traded fund (ETF), as announced on May 5, 2025. The regulator is seeking public comments until May 26, 2025, with a rebuttal period open until June 9, 2025, to assess whether the ETF meets standards for preventing fraud and market manipulation.
The new deadline for the SEC’s decision is set for June 17, 2025. This delay aligns with similar postponements for other crypto ETF proposals, including those for XRP, Hedera, and Dogecoin, reflecting the SEC’s cautious approach to altcoin-based financial products.
Despite the delay, analysts like Bloomberg’s James Seyffart estimate a 90% chance of approval by the end of 2025, citing Litecoin’s strong positioning among altcoins. The announcement led to a market reaction, with Litecoin’s price dropping nearly 8% to around $81.29. Canary Capital, founded by Steven McClurg, filed the ETF application in October 2024, aiming to offer investors regulated exposure to Litecoin, which has a market cap of approximately $6.6 billion.
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The SEC’s cautious approach to approving spot cryptocurrency ETFs, like Canary Capital’s Litecoin ETF, stems from its mandate to protect investors and ensure market integrity. The SEC prioritizes ensuring that financial products are resistant to fraud and manipulation. Cryptocurrencies like Litecoin, while established, operate in relatively unregulated markets compared to traditional assets.
The SEC is evaluating whether Litecoin’s underlying market has sufficient safeguards, such as robust surveillance mechanisms, to prevent manipulative practices like wash trading or pump-and-dump schemes. Cryptocurrencies are volatile, and altcoins like Litecoin can experience significant price swings, as seen with the 8% drop following the delay announcement. The SEC aims to ensure retail investors are not exposed to undue risk through regulated products like ETFs, which could amplify losses if the underlying asset is unstable or poorly understood.
Regulatory Uncertainty: The crypto industry lacks clear, comprehensive regulations in the U.S. The SEC is navigating a complex landscape where cryptocurrencies are sometimes classified as securities, commodities, or something else entirely. Litecoin, often viewed as a commodity like Bitcoin, still faces scrutiny to clarify its legal status and how an ETF would comply with securities laws.
The SEC’s approval of Bitcoin and Ethereum spot ETFs in 2024 set a precedent, but altcoins like Litecoin are less liquid and have smaller market caps ($6.6 billion for Litecoin vs. $1.2 trillion for Bitcoin). The SEC is cautious about extending approvals to altcoins without thorough analysis, as a misstep could undermine confidence in the broader ETF market.
Public and Industry Input: By delaying decisions and opening comment periods (e.g., until May 26, 2025, for the Litecoin ETF), the SEC gathers insights from market participants, exchanges, and the public. This helps assess whether proposed ETFs, like Canary’s, align with investor interests and market stability, especially given concerns about custody, liquidity, and exchange reliability.
The SEC has a history of delaying or rejecting crypto ETF proposals. Bitcoin spot ETFs took years to gain approval due to similar concerns about market manipulation and investor safety. The agency is applying the same rigorous standards to altcoin ETFs, ensuring they meet the high bar set for traditional financial products.
This cautious approach reflects the SEC’s balancing act: fostering innovation in financial products while mitigating risks in a rapidly evolving crypto market. Delays, like the one until June 17, 2025, for the Litecoin ETF, allow the SEC to conduct thorough due diligence, potentially paving the way for approvals if concerns are adequately addressed.