The SEC’s hesitation speaks volumes. As Bitwise pushes for staking-enabled Ethereum ETFs, regulators are digging deeper into whether passive crypto investors should earn yield or if it’s a risk too far.
On June 30, the U.S. Securities and Exchange Commission announced it would extend its review of Bitwise’s proposal to allow staking within its spot Ethereum (ETH) ETF, delaying what could have been a landmark shift in crypto investment products.
The securities regulator is now soliciting public feedback, specifically probing whether staking rewards introduce hidden risks that traditional ETF structures were not designed to handle. Bitwise, meanwhile, maintains that staking can operate within the existing framework, offering investors additional yield without altering the fund’s core mechanics.
A cautious commission in a rapidly evolving market
The SEC’s decision to delay Bitwise’s Ethereum staking ETF proposal reflects broader concerns about how crypto’s native yield mechanisms fit within traditional financial structures.
While staking is central to Ethereum’s proof-of-stake model, regulators are questioning whether ETF wrappers, built for passive exposure, can safely include active participation in blockchain consensus.
Unlike traditional ETFs, staking introduces the risk of penalties, known as “slashing,” if validators behave improperly. The agency is seeking clarity on whether such losses would be absorbed by fund managers or investors, and how they would be mitigated.
Liquidity is another concern. Staked ETH can be locked for days or weeks during withdrawals, raising the possibility of liquidity mismatches between ETF shares and the underlying assets during market volatility.
Validator centralization is also under scrutiny. If multiple ETH ETFs route staking through the same small group of institutional validators, such as Coinbase or Kraken, it could create concentration risks that run counter to crypto’s decentralized ethos.
Bitwise has countered that these risks are manageable, likening staking rewards to dividends in equity ETFs. Still, the SEC’s decision to request public comment signals lingering skepticism, especially after prior enforcement actions against staking programs like Kraken’s yield offering.
