Crypto ETF Regulatory Update: SEC Delays Staking and In-Kind Decisions

U.S. SEC Extends Timeline for Decisions on Crypto Staking and In-Kind ETFs

As the crypto industry continues its steady march toward mainstream adoption, the U.S. Securities and Exchange Commission (SEC) has once again signaled that its journey into regulating this complex financial terrain will not be rushed. In a calculated move reflecting the broader aim of establishing thoughtful and lasting frameworks for digital asset oversight, the SEC has postponed key decisions related to cryptocurrency-related exchange-traded funds (ETFs). These delays involve two distinct yet critical areas—staking for Ethereum ETFs and in-kind creations and redemptions—tools that could redefine how crypto investments interface with traditional financial markets.

Specifically, the SEC has opted to postpone a decision on allowing ether staking within Grayscale’s Ethereum-focused ETFs until June 1. Simultaneously, the regulator is also deferring a verdict on whether to permit in-kind redemptions and creations for crypto ETFs—a method allowing investors to exchange assets directly in crypto rather than cash—pushing that outcome to June 3. These narratives unfold as the SEC leans further into a broader initiative to bring clarity and structure to the digital asset ecosystem.

A Deliberate Pause for Broader Regulatory Clarity

These developments are rooted in the workings of the SEC’s evolving stance on cryptocurrencies, orchestrated in part by an in-house crypto task force. Understanding the need for coherence in regulation, this specialized group has taken on the challenge of shaping comprehensive policies that can adapt to the rapidly evolving crypto sector. As part of its process, the task force has consulted extensively with various stakeholders, gathering feedback from industry leaders and evaluating proposals intended to bring innovative crypto financial products to traditional investors.

Far from advancing a crackdown, the current posture of the task force is one of measured consideration. In fact, the group has already begun walking back some of the more aggressive enforcement actions inherited from its predecessors. A noteworthy moment occurred earlier this year when executives from Jito and Multicoin Capital met with the SEC in February to push the conversation forward on staking-based ETFs. These investment vehicles are designed to pass on staking rewards—generated by locking crypto assets for blockchain validation—to fund investors. It’s a move that, if approved, could significantly reshape how returns are generated in crypto ETFs.

The Grayscale Ethereum ETF Delay

The effort to permit staking within ETFs crystalized in a proposal by NYSE Arca, submitted on February 14. The financial exchange sought changes that would allow both the Grayscale Ethereum Trust ETF and the Grayscale Ethereum Mini Trust ETF—two products centered on Ethereum—to stake ETH tokens held in the funds and potentially yield staking-generated returns for investors. Originally, the SEC had until April 17 to render a judgment on the proposal. But in a filing released on Monday, the agency announced it had extended that deadline to June 1, citing the need for additional evaluation.

By staking ETH, these funds could participate directly in Ethereum’s new proof-of-stake consensus model while passing on real-time blockchain-generated yield to investors—effectively bridging the technical mechanisms of blockchain with traditional ETF investment models. Implementing such a mechanism in regulated investment vehicles, however, requires precise navigation of financial laws and the regulatory gray areas surrounding decentralized finance (DeFi).

The Broader Debate on In-Kind Creations and Redemptions

Another major front in this developing conversation revolves around in-kind mechanisms, where investors can convert ETF shares directly for the underlying cryptocurrency—such as bitcoin or ether—instead of cash. These processes are considered more tax-efficient and market-friendly, allowing for better alignment between the ETF and its underlying asset’s price. The Cboe BZX Exchange initiated a proposal for these changes back on February 19, aiming to enable in-kind redemptions for both the VanEck Bitcoin Trust and the VanEck Ethereum Trust.

Again, the SEC’s initial deadline for response was April 19, but that too has now been extended by an additional 45 days, with the final decision slated for June 3. A similar extension was granted to the WisdomTree Bitcoin Fund, which is also under consideration for the same operational shift to in-kind mechanisms. In each of these cases, the SEC is exercising its right to thoroughly vet these proposals, a move justified in the words of Sherry R. Haywood, assistant secretary to the Commission. “The Commission finds it appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein,” Haywood wrote in a formal statement related to VanEck’s ETF proposals.

The Stakes for Industry Growth and Investment Accessibility

At the heart of this regulatory back-and-forth lies a delicate balancing act between innovation and compliance. The crypto industry, particularly firms like VanEck and Grayscale, view the integration of staking and in-kind mechanisms as logical evolutionary steps. These tools not only modernize how investors interact with digital assets, but they also make ETFs more reflective of the underlying crypto economy, which is increasingly defined by features like decentralized staking and on-chain token transfers.

VanEck’s ETFs, which house both bitcoin and ethereum exposure, are already experiencing notable trading activity. One of its flagship products, the VanEck Bitcoin Trust—traded under the ticker HODL—registered $19.58 million in volume on April 11. These figures underscore both market demand and investor interest, adding pressure on regulators to provide clarity and pathways for innovation. As the Ethereum network matures and staking becomes more central to its functionality, integrating that yield mechanism into established financial products is quickly becoming a focal point for asset managers.

Looking Ahead: A Regulatory Crossroads

While no final decisions have yet been made, the careful tempo adopted by the SEC hints at a long game—one where short-term gains are weighed against long-lasting precedent. With upcoming deadlines in early June, decisions on whether crypto staking can be wrapped into ETFs and whether in-kind redemptions will be sanctioned for crypto trusts could have significant implications not only for institutional investors but also for the wider maturation of cryptocurrency as a regulated asset class.

Ultimately, the SEC’s cautious deliberation serves as both a barrier and a guidepost. It prevents rash implementation that could disrupt markets, while also inviting stakeholders to remain engaged in the rule-making process. Whatever final shape these decisions take, they will likely function as key milestones in the ever-unfolding story of crypto’s convergence with traditional finance.