The SEC raises legal red flags regarding two proposed crypto-ETFs tied to staking rewards, both of which have just passed initial registration stages.

The issue arose on Friday evening when the Securities and Exchange Commission informed ETF Opportunities Trust — the organization responsible for registering funds managed by REX Financial and Osprey Funds — that the new Ethereum and Solana staking ETFs cannot be considered legitimate investment companies under federal law. This calls into question their ability to list on public markets.

Both ETFs aim to provide investors with access to staking yields, tracking Ethereum and Solana, while also returning staking income to shareholders. However, the SEC stated that the applications were 'improperly filed' and warned that the registration documents could 'potentially mislead' regarding the legal status of the funds. The funds claimed they meet the definition of an investment company, but the SEC argues otherwise.

In an official letter sent on Saturday, the Commission stated that it may take further steps 'to ensure compliance with federal securities laws' if the situation is not resolved. Although the funds technically received effective registration earlier on Friday, meaning they could start operating at any time, this launch is now on hold.

Greg Collett, chief legal officer of REX Financial, stated that the firm is not backing down. 'We believe we can satisfy the SEC regarding the investment company issue, and we are not planning to launch the funds until we do so.' According to Greg King, the firm's founder, REX hoped to begin trading products by mid-June. Now everything is on hold until the SEC provides clear approval.

James Seyfarth, an ETF analyst at Bloomberg Intelligence, said the Commission's objections may be related to the application strategy used by REX. 'Even if the SEC does not allow the listing of this structure, we still believe that simpler attempts to enable staking in a U.S. ETF will ultimately be successful,' he said. 'It’s a matter of time, not if. But the SEC doesn’t seem thrilled with how REX has tried to push these listings through.'

This is already the second time in a few months that the SEC has intervened after a fund attempts to list with a structure it disapproves of. In March, the agency publicly rejected a private credit ETF managed by State Street Corp. and Apollo Global Management — the first of its kind — just hours after it was listed. This product was expected to face similar regulatory issues related to classification.

New staking ETFs are trying to combine traditional investment products with crypto-native features, such as transaction verification yields. But the SEC does not consider staking yields direct income and is clearly uncomfortable with listing a product that generates money in a way they do not fully regulate. Legal uncertainty around staking continues to block more complex crypto offerings.

As the SEC sharply slows down staking products, Bitcoin ETFs are attracting serious capital. Over the past five weeks, U.S. Bitcoin ETFs have received more than $9 billion in inflows, led by BlackRock's iShares Bitcoin Trust (IBIT). On the other hand, gold ETFs are losing money — they lost over $2.8 billion during the same time period.

This comes after Bitcoin reached an all-time high of $111,980 earlier this month. This increase followed positive movement on regulatory issues — particularly a new push around stablecoin legislation — and growing concerns about the financial position of the United States during President Donald Trump’s second term.

Investors view Bitcoin as a hedge rather than just a bet. Although gold has still risen over 25% for the year, it has fallen nearly $190 from recent highs.

Some analysts consider this shift to be long-term. Christopher Wood, global equity strategist at Jefferies, said, 'I remain optimistic about both gold and Bitcoin. They remain the best hedges against currency devaluation in the G7 world.' But others are not convinced that Bitcoin can be relied upon during market stress.

Critics point out that during major events — such as the August unwinding of yen trading — Bitcoin has sharply fallen along with other risky assets. Such volatility continues to make the SEC wary of the expansion of cryptocurrency exposure through mainstream investment products like ETFs.

$BTC , $ETH , $SOL

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according to: Cryptopolitan_News