The US Securities and Exchange Commission (SEC) is once again grappling with regulatory ambiguities in the fast-evolving world of cryptocurrency investments, as a fresh wave of yield-focused crypto funds tests the boundaries of federal law.
This comes at a time when the Trump-era regulatory approach continues to loosen scrutiny of digital assets.
At the centre of the latest row are two proposed exchange-traded funds (ETFs) from REX Financial and Osprey Funds.
These new products aim to generate investor returns by “staking” cryptocurrencies like Ether and Solana — a process that supports blockchain validation in exchange for rewards.
While the firms recently passed an initial registration milestone with the SEC, officials quickly backtracked the same evening, issuing objections that signal deeper concerns about whether such products comply with the Investment Company Act of 1940.
SEC staff raised the issue that, under federal law, investment companies must primarily deal in securities.
This requirement becomes murky when digital assets are involved, as clear regulatory definitions around what constitutes a security in the crypto space remain elusive.
“When ETFs derive income through staking, they can start to mirror traditional investment companies — particularly if the returns rely on the managerial skills of a third party,” explained Adam Gana, a solicitor with Gana Weinstein LLP.
“But these staking-based ETFs are pressing the limits of existing rules, and the SEC appears to be sending mixed signals.”
Gana further noted: “Tossing a few shares into the portfolio won’t necessarily convince the SEC to turn a blind eye.”
This unfolding situation underscores the urgent need for updated regulatory clarity as decentralised finance continues to blend with mainstream investment structures.
As crypto ETFs gain traction, financial authorities may be forced to re-evaluate their stance to balance innovation with investor protection.
