IRS Updates Guidance for Cryptocurrency Exchange-Traded Products

According to Cointelegraph, the U.S. Internal Revenue Service (IRS), under the Department of the Treasury, has revised its guidance for cryptocurrency exchange-traded products (ETPs), introducing a safe harbor for trusts to stake digital assets. Treasury Secretary Scott Bessent announced in a Monday X post that the new guidance provides crypto ETPs with a clear framework to stake digital assets and distribute staking rewards to retail investors. The updated guidance, available on the IRS website, stipulates that crypto trusts can engage in staking if they are traded on a national securities exchange, hold only cash and units of a single type of digital asset, are managed by a custodian, and address specific investor risks. This development is expected to significantly impact staking adoption, as noted by Bill Hughes, senior counsel at Consensys. In a Monday X post, Hughes highlighted that the safe harbor offers long-awaited regulatory and tax clarity for institutional vehicles like crypto ETFs and trusts, allowing them to participate in staking while maintaining compliance. This effectively removes a significant legal barrier that had previously deterred fund sponsors, custodians, and asset managers from incorporating staking yield into regulated investment products. The IRS's guidance follows the U.S. Securities and Exchange Commission's (SEC) approval in September of generic listing standards, which is anticipated to pave the way for the approval of crypto exchange-traded funds. The IRS and Treasury acknowledged the SEC's rule change as part of the updated guidance. Meanwhile, the guidance comes amid ongoing discussions in the U.S. Senate regarding the government shutdown. Reports from Sunday indicated that several Democratic lawmakers were prepared to join Republicans in voting to end the shutdown by passing a continuing resolution through January. As of the time of publication, the Senate had not yet voted on the measure. The shutdown, which began on October 1, has resulted in the furlough of staff at various departments and agencies, including the SEC and IRS.