The US Securities and Exchange Commission (SEC) is under renewed scrutiny following two key developments that signal a shifting stance on cryptocurrency regulation. The agency recently invited public feedback on a rule change that could allow in-kind redemptions for the WisdomTree Bitcoin Fund, while also releasing updated guidance suggesting certain crypto staking services may not be classified as securities. The moves have drawn sharp criticism from former SEC officials and current commissioners alike, raising questions about legal consistency and the Commission’s evolving role in digital asset oversight. SEC Seeks Public Input on In-Kind Redemptions for WisdomTree Bitcoin ETF The US Securities and Exchange Commission (SEC) has launched a formal review process and is inviting public commentary on whether to permit in-kind creations and redemptions for the WisdomTree Bitcoin Fund (BTCW), a spot Bitcoin exchange-traded fund (ETF) approved earlier this year. The move signals a potential shift in regulatory posture toward more flexible and crypto-native ETF structures, but for now, the agency is asking stakeholders to weigh in. The SEC’s call for public feedback, issued Monday, follows previous delays and open-ended inquiries concerning in-kind redemptions for a number of major crypto funds, including BlackRock’s iShares Bitcoin Trust (IBIT), the VanEck Bitcoin Trust, and the VanEck Ethereum Trust. “Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change,” the SEC wrote in its notice. “Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved.” The Commission is now giving the public 21 days to submit written comments, data, or arguments for or against allowing in-kind transactions for BTCW. The period offers a rare opportunity for both institutional and retail investors, crypto advocates, and regulatory experts to shape how the next wave of crypto ETFs are structured. Currently, most approved crypto ETFs, including BTCW, operate under a cash creation and redemption model. This means that when an investor wants to redeem shares, they receive US dollars rather than the actual underlying asset, Bitcoin, in this case. In contrast, in-kind redemptions allow investors to receive the underlying asset itself, a key feature of many traditional commodity ETFs, such as those tracking gold. This mechanism offers notable advantages: Tax efficiency for investors through avoidance of taxable events until sale. Lower transaction costs by minimizing intermediary conversions between Bitcoin and USD. Operational benefits for issuers, particularly those with on-chain capabilities. However, the SEC has long been hesitant to allow in-kind processes for crypto ETFs due to concerns about custody, market manipulation, and the regulatory status of crypto-native infrastructure. WisdomTree’s ETF Journey WisdomTree’s spot Bitcoin ETF , launched in January 2024, was one of several spot products approved after years of rejection by the SEC. Its approval was seen as a landmark event following Grayscale’s legal victory over the SEC in 2023, which compelled the agency to reconsider its hardline stance on spot Bitcoin ETFs. The current debate over in-kind redemptions is likely the next major battleground in the maturation of Bitcoin ETFs. A shift toward approving such mechanisms could pave the way for more efficient fund operations and greater institutional involvement in the crypto space. It would also reduce reliance on fiat settlements, aligning these products more closely with the ethos of decentralization and digital asset mobility. Industry leaders have advocated strongly for this change. BlackRock, in particular, has been vocal in its requests for in-kind permissions, suggesting that current cash-only models are suboptimal and inconsistent with traditional ETF standards. The SEC’s decision to formally institute proceedings, rather than approve or deny the request outright, indicates that the agency is seeking to build a robust legal and public record before issuing a final verdict. This approach mirrors its process during the spot ETF approval saga, in which waves of public commentary, institutional lobbying, and judicial pressure eventually influenced regulatory direction. If approved, WisdomTree’s BTCW could become one of the first US-listed spot Bitcoin ETFs to offer redemptions in actual Bitcoin — a feature that has been long sought after by crypto-native investors and fund managers alike. A Decision with Broader Ramifications Should the SEC approve in-kind transactions for BTCW, it would likely set a precedent for other issuers, including BlackRock, VanEck, and Fidelity, all of whom have expressed interest in similar capabilities. Moreover, the implications go beyond Bitcoin. Ethereum ETFs, which are still under review, could benefit from the framework set by BTCW’s outcome, potentially enabling a new generation of physically settled digital asset ETFs. As the 21-day window for public comment opens, the SEC is positioning itself to make one of the most consequential ETF-related decisions since the initial wave of spot approvals. SEC Faces Internal and External Firestorm Over Staking Guidance Shift Meanwhile, controversy erupted following new guidance issued by the SEC’s Division of Corporation Finance on May 29, which stated that some crypto staking offerings may not qualify as securities under the Securities Act. The updated stance effectively provides relief to proof-of-stake (PoS) blockchains and opens a new chapter in the SEC’s evolving approach to digital asset regulation. While the guidance was framed as an effort to provide clarity, critics argue it’s anything but. Among the harshest critics is John Reed Stark, former chief of the SEC’s Office of Internet Enforcement, who unleashed a scathing critique on social media. In a lengthy post on X, Stark accused the agency of undermining its core mission of investor protection. “This is how the SEC dies – in plain view,” Stark wrote. “It’s a shameful abdication of its investor protection mission and a betrayal of its proud 90-year legacy.” Stark emphasized that the SEC’s new position directly contradicts federal court rulings in high-profile cases against Binance and Coinbase, in which judges acknowledged that staking programs could indeed be treated as securities offerings under the Howey test, the foundational legal standard used to define securities. While the Coinbase case had been allowed to proceed in March 2024, it was later dismissed in February 2025, a shift many saw as foreshadowing the SEC’s new guidance. Similarly, the SEC’s lawsuit against Binance's staking program was dismissed with prejudice in May 2025, barring the agency from refiling the case, a ruling that marked a symbolic defeat for the regulator’s aggressive stance on staking. Internal Divide: SEC Commissioners at Odds The regulatory turmoil is not limited to external voices. Commissioner Caroline Crenshaw, a sitting member of the SEC, issued a sharply worded dissent in response to the May 29 guidance, arguing that the new interpretation does not align with legal precedent. “The staff’s analysis may reflect what some wish the law to be,” Crenshaw said, “but it does not square with the court decisions on staking and the longstanding Howey precedent on which they are based.” Crenshaw further warned that the SEC's recent actions are part of a broader trend of policy inconsistency and regulatory retreat. “This is yet another example of the SEC’s ongoing ‘fake it till we make it’ approach to crypto — taking action based on anticipation of future changes while ignoring existing law.” Her statement echoes a growing concern that the agency is attempting to rewrite policy through enforcement discretion, a practice that could lead to a ”regulatory vacuum” where market participants are left to guess what rules apply. Over the past six months, the SEC has adopted what many in the industry see as a deregulatory posture toward digital assets. In addition to dropping several lawsuits and investigations, the agency has hosted multiple closed-door roundtables with industry stakeholders aimed at ”collaborative rulemaking.” Critics like Stark have described this shift as a “crypto-deregulatory blitzkrieg” — a rapid pivot that not only contradicts prior agency enforcement actions but also risks undermining the SEC’s credibility with courts and investors alike. Regulatory Contradictions and Token Classification Confusion The May 29 guidance has also reignited a key debate over the classification of specific crypto assets. Commissioner Crenshaw pointed to a pattern of inconsistency in the SEC’s treatment of assets like Ether (ETH) and Solana (SOL). “How is it that these crypto assets are supposedly not securities when it comes to registration requirements, but conveniently are securities when a registrant sees an opportunity to sell a new product?” she asked. These comments reflect ongoing frustration over the SEC’s lack of clear standards for asset classification, a problem that has plagued U.S. crypto regulation for years. Not everyone at the Commission shares these concerns. At the Bitcoin 2025 Conference in Las Vegas, Commissioner Hester Peirce, widely known as “Crypto Mom” for her pro-innovation stance, defended the agency’s approach. “Most crypto assets, as we see them today, are probably not themselves securities,” Peirce said. “That doesn’t mean that you can’t sell a token that is not itself a security in a transaction that is a securities transaction.” Peirce emphasized that the SEC’s focus should be on the structure of the offering, not the underlying asset — a nuanced legal position that she argues requires contextual, rather than categorical, regulation. Her comments, though more tempered, align with the growing industry consensus that transaction-level guidance is essential to resolving the murky legal landscape surrounding staking and token offerings. A Divided Commission, A Fragmented Framework As it stands, the SEC appears increasingly divided on crypto policy, with Commissioners Peirce and Crenshaw representing opposing philosophical camps: one advocating for principle-based innovation, the other warning of legal overreach and dilution of the Commission’s regulatory responsibilities. In the meantime, crypto companies are left in regulatory limbo, unsure whether future products involving staking — such as staking-as-a-service, validator pooling, or liquid staking tokens — will require registration, trigger enforcement, or receive a green light under the new interpretation. For institutional investors and retail users alike, the shifting regulatory landscape creates significant uncertainty.
