IRS introduces Safe Harbor, allowing tax-free betting on crypto ETPs

Revenue Procedure 2025-31 allows ETPs to distribute staking rewards directly to investors without imposing additional taxes.

The U.S. Treasury Department and the IRS have announced a new safe harbor that will allow crypto exchange-traded funds (ETFs) to stake digital assets without paying additional taxes.

The guidelines resolve a regulatory issue that previously prevented asset managers from participating in staking networks due to concerns about potential violations of tax laws.

Safe Harbor Directive

Under Revenue Procedure 2025-31, ETFs and trusts now are allowed to stake digital assets and share the rewards directly with investors. Treasury Secretary Scott Bessent declared on November 10, it was announced that this move is intended to increase benefits for investors, promote innovation and maintain America’s position as a global leader in digital assets and blockchain technology.

Under the previous framework, tax law prohibited a trust from exercising control over its investments or operating a business for profit. This posed a challenge because actively managing staking could result in the IRS classifying the product as a business. If that were to happen, the trust’s rewards would be subject to corporate tax, making the activity unprofitable for investors.

The revised policy creates a safe harbor where wagering rewards earned within an ETP framework do not automatically trigger immediate tax liabilities for individual investors. Consensys attorney Bill Hughes explained the update, saying: “[The guidance] transforms striking from a compliance risk to a tax-recognized, institutionally viable activity.”

To benefit from the protection, an ETF must follow strict rules. The investment products must operate on a national securities exchange and all activities and disclosures must be approved by the SEC. The trust can only hold cash and one type of proof-of-stake digital asset, and management is limited to essential tasks such as accepting assets, paying expenses, and distributing rewards.

Earning profits from market fluctuations is also not allowed, and a third-party custodian must hold the private keys and work with an independent staking provider.

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New rules accelerate a growing trend

This new tax clarity comes now that asset managers are already expanding their offering. The regulatory pathway for such products was partially cleared in August when the SEC’s Division of Corporation Finance issued a bulletin stating that certain liquid staking activities are not covered by the securities laws.

Many experts saw this determination as the last major hurdle for the SEC to approve staking in spot Ethereum ETFs. It set the stage for new products, including the first Solana staking ETF, which launched in the United States in July.

BMNR Bullz, a well-known X account, described The development is seen as a major win for ETH and crypto ETFs, suggesting it could open the door to trillions of dollars in institutional capital and accelerate the adoption of mainstream digital assets.