tl;dr
The U.S. Securities and Exchange Commission (SEC) warned that two proposed ETFs linked to Ethereum and Solana may not meet the legal definition of an investment company, raising concerns about their registration and eligibility for exchange listing. The SEC questioned whether the REX-Osprey ETH and ...
The U.S. Securities and Exchange Commission (SEC) issued a warning regarding two proposed exchange-traded funds (ETFs) linked to Ethereum and Solana, questioning whether these funds meet the legal definition of an investment company under the Investment Company Act of 1940. The SEC raised concerns about the registration and eligibility for exchange listing of the REX-Osprey ETH and SOL ETFs, which involve staking mechanisms.
The ETFs, filed by REX Shares and Osprey Funds through the ETF Opportunities Trust—a Delaware-based open-end investment company—have not yet launched or been listed on any exchange. The SEC staff expressed unresolved questions about whether the funds are primarily investing in securities, a requirement to qualify as investment companies. Furthermore, the SEC indicated potential improper filing under Form N-1A, which only applies to qualifying investment companies, and highlighted possible non-compliance with Rule 6c-11 conditions that enable ETFs to list without seeking exemptive relief.
These concerns led the SEC to consider further measures to ensure adherence to federal securities laws. The notice comes shortly after the SEC clarified in new guidance that certain forms of crypto staking, such as self-staking and custodial staking, do not constitute securities offerings, though this guidance is non-binding and met with dissent from Commissioner Caroline Crenshaw, who cautioned about ongoing legal ambiguities.
In addition to the Ethereum and Solana ETFs, the related registration statement from January 21 also included filings for other crypto-linked products, such as ETFs for the TRUMP meme coin, BONK, Dogecoin, Bitcoin, and XRP. While the registration for the REX-Osprey Ethereum and Solana ETFs became effective on May 30, the funds remain inactive.
The SEC’s scrutiny centers on the definition of an investment company, which in U.S. law requires a fund to be predominantly engaged in securities investing or to have over 40% of its total assets in investment securities. If these ETFs do not meet such criteria, their registration under the existing federal laws would be inappropriate, impacting their ability to list and operate legally.
This development underscores the evolving regulatory landscape for cryptocurrency investment products and highlights the challenges fund sponsors face in aligning innovative blockchain-based assets like staking with traditional securities laws.