Regulators Slow Crypto ETF Roll While Newcomers Find a Path Around Barriers

This Friday marks a significant development in the cryptocurrency exchange-traded fund (ETF) market as REX and Osprey prepare to launch new ETFs. These funds have passed the 75-day review period set by the U.S. Securities and Exchange Commission (SEC) and are expected to start trading shortly unless regulators object at the final stage. Unlike spot Bitcoin ETFs, which require a more stringent approval under the Securities Act of 1933, the REX-Osprey products are structured under the Investment Company Act of 1940, a framework that facilitates quicker market entry. The funds will track a variety of cryptocurrencies, including Bonk, Trump coin, Bitcoin, XRP, and Dogecoin.

The launch of these ETFs signals continued institutional interest in the digital asset market, though the broader crypto ETF landscape remains hampered by regulatory delays. As of now, 92 crypto ETFs are awaiting approval from the SEC, according to Bloomberg ETF analyst James Seyffart. Notably, applications from major financial firms such as BlackRock, Franklin Templeton, and Fidelity have been delayed, with some deadlines extending into November. Despite the SEC’s recent approval of Bitcoin and Ethereum spot ETFs and its acknowledgment that certain staking activities do not fall under securities regulations, regulatory scrutiny remains high for more innovative products.

The SEC’s cautious approach is evident in its treatment of Ethereum staking and other proof-of-stake features. Franklin Templeton’s proposed Ethereum staking and Solana ETFs now have approval deadlines stretching into the fourth quarter, while BlackRock’s iShares Ethereum Trust staking product has been delayed until October 30. These delays reflect the commission’s ongoing deliberations over the regulatory treatment of staking mechanisms and other novel features in the crypto ecosystem.

Industry analysts suggest that the SEC’s hesitance is partly due to the complex nature of digital assets and the need to balance innovation with investor protection. In July, SEC Chair Paul Atkins announced “Project Crypto,” a commitment to modernize digital asset regulations. However, the prolonged review periods for new ETFs indicate that the commission remains selective in its approvals, focusing primarily on well-established assets like Bitcoin and Ethereum.

The REX-Osprey funds highlight the growing diversity of crypto ETF products but also underscore the limitations imposed by regulatory constraints. While these funds provide investors with additional exposure to a broader range of cryptocurrencies, they do not offer direct ownership of the underlying digital assets. This distinction is crucial for investors seeking to navigate the evolving regulatory environment and understand the implications of indirect versus direct exposure.