Crypto ETFs Stuck in Regulatory Rain Delay as Shutdown Freezes Approvals

The U.S. Securities and Exchange Commission (SEC) is reviewing 21 staking-focused cryptocurrency exchange-traded fund (ETF) applications submitted by REX Shares and Osprey Funds, but a government shutdown has stalled progress on approvals. The filings, which include tokens such as Cardano (ADA), Avalanche (AVAX), Polkadot (DOT), and Sui (SUI), aim to provide investors with regulated exposure to altcoins while incorporating staking rewards and offshore structures. The applications, structured under the Investment Company Act of 1940, are designed to bypass the more complex Securities Act of 1933 approval process, leveraging new SEC listing standards adopted in September 202527 Crypto ETF Filings Face SEC Delays Amid Shutdown^[1].

The new standards, which apply to commodity-linked exchange-traded products, streamline the approval process by eliminating the need for case-by-case rule changes under Section 19b-4. This shift is expected to accelerate the launch of crypto ETFs, provided the SEC resumes full operations. However, the current government shutdown has reduced staffing levels, freezing the review of pending applicationsREX-Osprey ETFs Set to Launch Friday as SEC Delays Rival …^[2]. Analysts, including Bloomberg's James Seyffart, describe the situation as a "rain delay," noting that the regulatory framework is now more conducive to rapid approvals once normal operations resumeCrypto ETF Update: Rex-Osprey’s XRP ETF, DOGE ETF to^[3].

REX and Osprey's filings highlight a strategic use of Cayman Islands subsidiaries to manage tax and regulatory compliance. These structures allow up to 40% of assets to be allocated to foreign-listed ETPs from providers like 21Shares and CoinShares, diversifying exposure beyond U.S. marketsREX and Osprey Crypto ETFs Set to Launch Amid SEC Delays on …^[4]. The inclusion of staking features-enabling investors to earn rewards while holding assets-marks a significant innovation in crypto ETF design. Similar structures were previously tested in REX-Osprey's successful Solana staking ETF, which saw strong performance and inspired further filingsREX and Osprey Spark Crypto ETF Surge with 21 New Filings^[5].

The October 2025 deadline for 16 ETF applications under the new framework has heightened market anticipation. Analysts predict that while altcoin ETFs may not replicate Bitcoin's inflows, they could attract steady demand by offering exposure to tokens with significant market capitalization. Seyffart emphasized that the sector's evolution will likely include staking-based products, covered call strategies, and leveraged or inverse offerings, though individual altcoin ETFs may struggle to match broader index-based growth narrativesREX-Osprey File for 21 Crypto ETFs with Staking Rewards^[6].

Despite the regulatory progress, challenges remain. Leveraged filings, such as Defiance's 3× products, face hurdles due to existing 2× leverage caps, prompting debates over creative structuring to meet compliance requirementsREX-Osprey Files 21 New Crypto ETFs with Staking Options At SEC^[7]. Additionally, the reliance on offshore entities introduces regulatory and tax complexities, which could delay approvals or impact investor confidence. The government shutdown's impact on the SEC's ability to meet October deadlines further underscores the uncertainty facing the marketREX and Osprey file for 21 crypto ETFs including ... - Cryptopolitan^[8].

The surge in filings reflects growing institutional and retail interest in crypto assets beyond Bitcoin and Ethereum. REX and Osprey's coordinated push-alongside Defiance's 6 leveraged products-signals a shift toward diversified crypto investment vehicles. However, the long-term success of these ETFs will depend on their ability to generate consistent inflows and demonstrate value propositions that align with investor demand for yield and market exposureREX-Osprey Files ADA, HYPE, XLM, SUI Crypto ETFs - CoinGape^[9].