The US Internal Revenue Service (IRS), the nation’s primary tax-collection bureau, has issued updated guidance that includes a “safe harbor” provision allowing cryptocurrency exchange-traded products (ETPs) to stake digital assets. This significant development, announced by Treasury Secretary Scott Bessent, aims to provide a clear pathway for crypto ETPs to participate in staking and share the rewards with their retail investors.
According to the guidance published on the IRS website, crypto trusts can now engage in staking activities under specific conditions. These conditions include being traded on a national securities exchange, holding only cash and “units of a single type of digital asset,” being held by a custodian, and effectively mitigating specific risks to investors.
This move is expected to have a substantial impact on staking adoption within the institutional investment landscape. Bill Hughes, senior counsel at Consensys, highlighted the importance of this safe harbor, stating it provides “long-awaited regulatory and tax clarity for institutional vehicles such as crypto ETFs and trusts.” He further noted that it effectively removes a significant legal barrier that had previously discouraged fund sponsors, custodians, and asset managers from integrating staking yield into regulated investment products.
The updated IRS guidance follows the US Securities and Exchange Commission (SEC) approving generic listing standards in September, a decision anticipated to pave the way for greenlighting crypto exchange-traded funds. Both the IRS and the Treasury acknowledged this SEC rule change as a foundational element of the new guidance.
This crucial guidance arrives amid discussions surrounding the potential end of a government shutdown that has lasted over 40 days. Reports indicated that several Democratic lawmakers were prepared to back Republicans in a vote to pass a continuing resolution, aiming to end the shutdown by January. The shutdown has resulted in the furloughing of staff at numerous departments and agencies, including the SEC and IRS, highlighting the importance of this new guidance emerging as government operations look to resume full capacity.
