SEC Delays Bitwise Ethereum ETF Staking Decision Over Manipulation Concerns

The U.S. Securities and Exchange Commission (SEC) has officially delayed its decision on whether to allow staking within the Bitwise Ethereum ETF. This delay follows months of internal debate between Bitwise, NYSE Arca, and the SEC staff. Bitwise initially proposed the addition of staking after receiving approval to hold Ethereum directly, aiming to generate income for its investors. However, this proposal has raised concerns regarding investor protection and potential conflicts of interest.

The SEC cited fears of manipulation and unfair practices associated with staking in publicly traded funds as a reason for the delay. While Bitwise argued that staking offers financial benefits for ETF holders, the SEC remains cautious. Officials emphasized that any structural changes must be fair, liquid, and provide proper risk protection. The SEC has stated that it will subject the case to public comment before making a final decision. Until then, the Bitwise Ethereum ETF will function as a standard spot ETF without staking features.

The outcome of this proposal could significantly impact how staking is treated in future ETFs across the crypto sector. If approved, more issuers could pursue Ethereum ETF staking models, enhancing yield opportunities for investors. However, a rejection may discourage innovation in stakeholder-focused financial products. Other ETF issuers are closely watching the situation, especially with increased demand for yield-generating crypto exposure. The SEC’s stance on Ethereum ETF staking will likely influence pending applications for Solana, XRP, and Litecoin ETFs.

Meanwhile, Bitwise continues to advocate for staking as a viable income source within regulated investment structures. The company maintains that a carefully managed staking process can align with regulatory goals. However, the SEC’s extended examination signals its intent to scrutinize every aspect of the staking mechanism. In a related development, REX Shares secured clearance to launch the REX Osprey Solana Staking ETF, becoming the first in the U.S. to incorporate a staking model. This ETF required adjustments to satisfy SEC guidelines, including allocating at least 40% of its assets to other exchange-traded products, primarily offshore.

The SEC objected to the initial registration due to classification issues under investment company regulations. The workaround enabled REX to move forward without directly violating U.S. securities rules. This launch may set a limited precedent while Ethereum ETF staking remains under review. As a result, the Bitwise Ethereum ETF case could establish broader guidelines for what staking structures regulators may approve in future filings. If Bitwise gains approval, more crypto asset managers may adopt similar strategies. However, the SEC’s current caution shows that it will proceed slowly and examine each case independently.

In summary, the SEC has postponed a decision on Bitwise’s proposal for Ethereum ETFs staking, citing unresolved concerns around investor protection and manipulation risks. While Bitwise sees staking as a yield-enhancing tool, regulators remain cautious. The ruling could set a precedent for future ETF products involving staking. The SEC is assessing whether allowing staking within the ETF could expose investors to added risks or unfair market practices. The commission delayed the ruling to conduct further analysis and collect public feedback on the staking proposal’s implications. Staking would allow the fund to lock Ethereum tokens on the blockchain, earning rewards for validating transactions. A positive outcome could encourage more ETFs to pursue staking, while rejection may lead to tighter restrictions. The REX Osprey Solana Staking ETF was approved with structural adjustments, becoming the first of its kind in the U.S.