REX Financial and Osprey Funds’ plans to launch US crypto ETFs offering staking rewards have encountered regulatory challenges, even after an initial nod from the Securities and Exchange Commission (SEC).

What Happened: The proposed ETFs, designed to track Ethereum (CRYPTO: ETH) and Solana (CRYPTO: SOL), are facing scrutiny from US regulators.

The regulators are questioning if these ETFs fulfill the legal criteria of ETFs under federal securities law. The SEC expressed its concerns in a letter to ETF Opportunities Trust, the legal entity issuing the ETFs, on Friday.

The SEC pointed out potential problems with the funds’ registration statement and suggested that the ETFs’ status as investment companies could be misleading. Greg Collett, general counsel at REX Financial, responded, “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.”

SEC Commissioner Caroline Crenshaw criticized the agency’s inconsistent approach to crypto regulation. She raised questions about how crypto assets could be considered non-securities for registration purposes, but be classified as securities when launching a new product, reports Bloomberg.

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This incident marks the second time in recent months that the SEC has publicly questioned a listed fund investing in alternative asset classes. Despite the regulatory uncertainty, REX Financial remains hopeful about launching the ETFs by mid-June.

Why It Matters: The SEC’s scrutiny of these proposed crypto ETFs underscores the regulatory challenges facing the crypto industry.

The inconsistent approach to crypto regulation, as highlighted by Commissioner Crenshaw, further complicates the situation.

The outcome of this regulatory review could have significant implications for the future of crypto ETFs in the US, potentially influencing the pace and direction of innovation in this emerging asset class.

Despite these challenges, the optimism shown by REX Financial indicates the industry’s resilience and its commitment to navigating the complex regulatory landscape.

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