Fidelity's Ethereum ETF Update: Staking Feature Sparks Mixed Reactions

Fidelity Investments has updated its Ethereum (ETH) exchange-traded fund (ETF) application to include staking. This change, filed with the US SEC on March 18, has sparked discussions in the financial and crypto worlds, receiving a mixed response.

By allowing staking, the ETF could support Ethereum's network and earn rewards, a key feature after Ethereum's move to a Proof of Stake (PoS) model.

This amendment follows concerns expressed by US lawmakers to the SEC, urging a halt on new crypto ETFs due to investor risk concerns. The staking feature would let the ETF invest a part of its assets in staking through chosen providers, potentially including Fidelity affiliates.

Staking lets investors lock up their digital assets to earn extra cryptocurrency, aiming to generate income within a regulated product.

According to the filing, the ETF would receive ether tokens as rewards for staking, considered as income. The SEC, traditionally cautious with crypto products and having rejected Bitcoin ETFs before, hasn't decided on Ethereum ETF applications yet.

With a decision due by May, experts now see a 35% chance of approval.

Reactions to Fidelity’s proposal have varied, raising questions about how the SEC will respond. James Seyffart from Bloomberg doubts the SEC's approval readiness, despite not advocating for denial. Zack Guzmán suggests Fidelity's move could be strategic or a hurdle for approval.

As the SEC reviews this application, the decision could impact future crypto ETFs, especially those including staking or blockchain functions, marking a key moment for integrating digital currencies with traditional financial products.