SEC Blocks Crypto Staking ETFs Amid Bitcoin ETF Boom and Regulatory Scrutiny

The Securities and Exchange Commission (SEC) has signaled significant regulatory hurdles for new investment products designed to offer exposure to cryptocurrency staking rewards. This recent intervention follows initial registration clearances for two such proposed Exchange Traded Funds (ETFs) by REX Financial and Osprey Funds, which aimed to track Ethereum and Solana. The SEC’s move casts doubt on their ability to list on public markets, highlighting ongoing challenges in integrating novel crypto features into traditional finance.

SEC Flags Staking ETF Structure and Disclosures

The regulatory scrutiny emerged when the SEC informed ETF Opportunities Trust, the entity responsible for registering funds from REX Financial and Osprey Funds, that the Ethereum and Solana staking ETFs might not qualify as legal investment companies under federal statutes. These ETFs were structured to provide investors with access to staking yields by holding Ethereum and Solana, with income subsequently distributed to shareholders.

However, the SEC deemed the filings “improperly filed” and warned that the registration documents could be “potentially misleading” regarding the funds’ legal standing. Despite earlier technical registration approval that could have allowed immediate launch, the SEC’s intervention has stalled these products, with the Commission indicating it may pursue further actions to ensure adherence to federal securities laws if the situation is not resolved.

REX Financial’s General Counsel, Greg Collett, affirmed the firm’s commitment to addressing the SEC’s concerns, stating they would not launch the funds until regulatory clarity is achieved. REX founder Greg King had initially targeted a mid-June launch.

ETF analyst James Seyffart from Bloomberg Intelligence suggested the SEC’s objection might be tied to REX’s specific filing approach. Seyffart remains optimistic about the eventual approval of staking-inclusive U.S. ETFs, viewing it as a matter of time rather than possibility, though acknowledging the SEC’s apparent disapproval of REX’s method.

This marks the second instance in recent months where the SEC has intervened against a fund attempting to list with a novel structure. A similar regulatory pushback occurred in March concerning a private credit ETF from State Street Corp. and Apollo Global Management. The core tension lies in the SEC’s perspective on staking yields: it does not view them as straightforward income and appears hesitant to approve products deriving revenue from unregulated crypto-native features. This regulatory ambiguity continues to impede the introduction of more complex crypto investment vehicles.

Bitcoin ETFs Gain Momentum While Gold Funds Experience Outflows

While staking ETFs face regulatory headwinds, Bitcoin-backed ETFs are experiencing significant momentum. Over the past five weeks, U.S. Bitcoin ETFs, spearheaded by BlackRock’s iShares Bitcoin Trust (IBIT), have collectively attracted over $9 billion in inflows. Conversely, gold ETFs have seen outflows exceeding $2.8 billion during the same period.

This divergence aligns with Bitcoin’s recent ascent to an all-time high of $111,980. This rally is partly attributed to positive regulatory developments, particularly concerning stablecoin legislation, and growing concerns about the U.S. fiscal landscape under President Donald Trump’s current administration. Many investors now view Bitcoin as a strategic hedge rather than merely a speculative asset. Despite gold’s year-to-date gains exceeding 25%, it has declined nearly $190 from its recent peaks.

Christopher Wood, Global Equity Strategist at Jefferies, maintains a positive outlook on both gold and Bitcoin, deeming them premier hedges against currency debasement within G7 economies. However, not all market participants share this conviction, with some critics highlighting Bitcoin’s historical volatility during significant market stresses, such as its sharp decline alongside other risk assets during the August unwinding of the yen carry trade. Such price fluctuations reinforce the SEC’s cautious approach to broadening crypto exposure via conventional investment vehicles like ETFs.