TLDR
SEC now permits in-kind redemptions for spot Bitcoin and Ether ETFs.
Bitcoin ETF options position limits raised from 25,000 to 250,000.
New rule aligns crypto ETFs with gold and other commodity ETPs.
In-kind processes aim to lower costs and improve ETF efficiency.
The United States Securities and Exchange Commission (SEC) has approved in-kind creation and redemption for cryptocurrency exchange-traded products (ETPs), including Bitcoin and Ethereum ETFs. This change permits authorized participants to exchange shares for the underlying crypto assets instead of cash.
This regulatory shift is seen as part of a broader alignment with commodity-based ETPs such as gold. The approval brings new operational flexibility for funds and may reduce costs for issuers and investors.
Rule Change Allows Direct Transfer of Crypto Assets
The new rule allows ETF issuers to redeem and create shares using Bitcoin or Ethereum rather than converting to cash. According to the SEC, this move is designed to make ETF operations more efficient.
Authorized participants can now conduct redemptions by delivering or receiving actual crypto assets, which reduces the need for market trades. This change can lower transaction fees and minimize tracking error between the ETF and the underlying asset.
SEC Chair Paul S. Atkins stated, “It’s a new day at the SEC, and a key priority of my chairmanship is developing a fit-for-purpose regulatory framework for crypto asset markets.” He added that this shift aims to improve efficiency and reduce cost.
SEC Expands ETF Options and Raises Position Limits
Along with in-kind approval, the SEC also approved options trading for certain spot Bitcoin ETFs. The regulator increased position limits for these options from 25,000 to 250,000 contracts.
This tenfold increase is expected to bring more institutional participation to the Bitcoin ETF derivatives market. FLEX options for Bitcoin ETP shares were also approved, further supporting broader trading strategies.
Jamie Selway, Director of the SEC’s Division of Trading and Markets, said, “In-kind creation and redemption provide flexibility and cost savings to ETP issuers, authorized participants, and investors.”
Market Momentum and Policy Reform Push the Change
Previously, only cash redemptions were allowed when the SEC approved spot Bitcoin and Ethereum ETFs in 2024. Industry participants had long advocated for in-kind procedures to match the standards applied to gold-backed ETPs.
The shift comes amid a broader policy movement supporting digital assets. SEC Commissioner Hester Peirce said in June that in-kind redemptions were under serious consideration. Recent crypto-friendly legislation and a clear policy direction from the current administration have helped push the SEC’s stance forward.
Demand for spot crypto ETFs continues to rise. Bitcoin ETFs in the U.S. have seen 12 consecutive days of inflows, adding $6.6 billion in assets. Ether ETFs are also gaining traction, with BlackRock’s iShares Ethereum ETF surpassing $10 billion in just 251 days.
Crypto ETPs Move Closer to Commodity ETP Standards
With in-kind processes now approved, Bitcoin and Ethereum ETFs align more closely with rules governing commodity ETPs like gold. This move is seen by the market as a step toward making crypto ETPs more stable and cost-effective.
Bloomberg analyst James Seyffart noted that upcoming altcoin ETFs will likely include in-kind provisions from launch. Industry stakeholders are watching closely as regulatory structures continue to develop.
The SEC’s decision also follows Nasdaq’s filing for staking in BlackRock’s Ethereum ETF, indicating that the agency is open to further evolution in crypto fund mechanisms.
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