The Securities and Exchange Commission (SEC) is concerned that crypto exchange-traded funds that offer exposure to staking may not qualify as ETFs after all.
On Friday, the agency sent a letter to ETF Opportunities Trust regarding Ethereum and Solana funds by REX Financial and Osprey Funds with staking exposure: the REX-Osprey ETH ETF and the REX-Osprey SOL ETF.
Staking allows crypto investors to earn rewards on the tokens they hold.
The SEC letter said that it “continues to have unresolved questions whether the Funds, if structured and operated as proposed, would be able to meet the definition of ‘investment company’ under the Investment Company Act.”
Under the law, funds must meet this definition to be eligible to trade on the stock market.
The financial regulator added that it is “concerned that the Funds may have improperly filed their registration statement on Form N-1A and that disclosures in the registration statement regarding the Funds’ status as investment companies may be potentially misleading.”
REX Financial and Osprey Funds declined to comment to etf.com. However, Bloomberg reported that Greg Collett, general counsel at REX Financial, said, “We think we can satisfy the SEC on the investment company question, and we don’t intend to launch the funds until we do that.”
The funds would have been the “first-ever staked Ether and Solana ETFs” as well as the “first-ever spot Solana” ETF, according to Eric Balchunas, senior ETF analyst at Bloomberg.
The SEC’s delay comes after it issued guidance on Thursday, stating that staking participants don’t need to register their transactions with the agency.
On Saturday, Commissioner Caroline Crenshaw issued a statement criticizing the SEC’s “confusion” on crypto asset security status.
“In the name of this clarity, we’ve seen staff statement after staff statement, pronouncing that all sorts of crypto assets are not securities. And yet, now we see no objection to the effectiveness of new exchange-traded funds that assert certain crypto assets—ETH and SOL—actually are securities. Does this Commission, in fact, believe that ETH and SOL are securities?” Crenshaw wrote. “How is it that these crypto assets are supposedly not securities when it comes to registration requirements but conveniently are securities when a registrant sees an opportunity to sell a new product?”
