SEC Proposes 85% Asset Threshold for Multi-Asset Crypto ETFs

The U.S. Securities and Exchange Commission has initiated a formal comment period regarding a proposed regulatory framework for multi-asset crypto exchange-traded funds. The core of this proposal mandates that any fund seeking approval under these new guidelines must maintain at least 85% of its underlying holdings in assets that meet specific liquidity and regulatory standards. This move signals a shift toward standardizing the composition of basket-style crypto products, which have previously faced fragmented approval paths.

Standardization of Multi-Asset Fund Composition

The proposed rule aims to address the operational complexity of managing portfolios that include a variety of digital assets. By setting an 85% threshold for qualified assets, the SEC intends to limit the inclusion of highly speculative or illiquid tokens within regulated investment vehicles. This requirement forces issuers to prioritize assets with established custody solutions and verifiable market depth. The remaining 15% of the fund allocation remains subject to existing disclosure and risk management requirements, providing a narrow window for exposure to emerging assets while maintaining a core of more stable holdings.

This regulatory shift follows a period of rapid expansion in crypto market analysis where issuers have sought to move beyond single-asset products. The 85% requirement effectively creates a hurdle for funds that rely on long-tail assets to boost performance, as those assets may no longer qualify for the primary allocation bucket. Issuers will likely need to re-evaluate their current index construction methodologies to ensure compliance with these proposed concentration limits.

Impact on Custody and Liquidity Requirements

The transition to this standardized model will likely increase the operational burden on fund custodians. Because the 85% threshold requires a high degree of confidence in the underlying asset's liquidity, custodians must demonstrate that these assets can be liquidated without significant price slippage during periods of market stress. This requirement aligns with broader efforts to integrate digital assets into traditional financial frameworks, similar to the recent initiatives seen in BlackRock and Standard Chartered Integrate Tokenized Treasuries into OKX Collateral Framework.

AlphaScala data currently tracks various technology and consumer cyclical equities, including ON Semiconductor Corporation (ON stock page) with an Alpha Score of 46/100, Unity Software Inc. (U stock page) with an Alpha Score of 43/100, and Hasbro, Inc. (HAS stock page) which is currently unscored. While these equities operate outside the direct scope of the SEC's crypto ETF proposal, the broader trend of regulatory scrutiny remains a relevant factor for firms navigating the intersection of traditional finance and digital asset infrastructure.

The next concrete marker for this proposal is the conclusion of the public comment period. Following this, the SEC will review industry feedback to determine if adjustments to the 85% threshold or the definition of qualified assets are necessary before moving toward a final rule adoption. Market participants should monitor the subsequent guidance on how existing multi-asset products will be grandfathered or required to rebalance their portfolios to meet the new standard.