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SEC flags concerns over crypto ETFs that offer staking rewards

WASHINGTON – A potentially watershed effort to launch US crypto exchange-traded funds (ETFs) that offer staking rewards is throwing up regulatory doubts, even after the funds said they had received initial US Securities and Exchange Commission (SEC) registration approval.

Issuers REX Financial and Osprey Funds are targeting to launch ETFs tracking Ethereum and Solana that offer staking exposure, which allows investors to earn rewards by pledging tokens to help operate the blockchain. 

US regulators are now raising concerns that the vehicles may not legally qualify as ETFs at all under federal securities law.

In a letter late on May 30 sent to ETF Opportunities Trust – the legal entity that issues various ETFs including those managed by firms like REX – SEC staff said the two ETFs may fail to meet the legal definition of an investment company, a designation needed for the funds to list on the stock market.

SEC said it was concerned that the funds “improperly filed their registration statement” and that “disclosures in the registration statement regarding the funds’ status as investment companies may be potentially misleading”.

Mr 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.”

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