SEC Delays In-Kind Redemptions for Major Bitcoin and Ethereum ETFs

TLDR

Table of Contents

SEC delays approval of in-kind redemptions for Fidelity’s Bitcoin and Ethereum ETFs
BlackRock’s Ethereum ETF filing acknowledged by SEC, showing potential regulatory interest
Multiple issuers including WisdomTree and VanEck face similar delays on redemption proposals
June deadlines approaching for Grayscale, Bitwise, and WisdomTree ETF feature decisions
In-kind redemptions allow direct asset exchange instead of cash, reducing costs and taxes

The U.S. Securities and Exchange Commission has postponed its decision on Fidelity’s request to include in-kind redemptions in its spot Bitcoin and Ethereum exchange-traded funds. This delay affects one of the largest asset managers seeking to improve ETF operations through enhanced flexibility features.

SEC DELAYS IN-KIND REDEMPTIONS FOR FIDELITY SPOT BITCOIN AND ETHEREUM ETFS
— Phoenix » PhoenixNews.io (@PhoenixNewsIO) May 22, 2025

In-kind redemptions allow authorized participants to exchange ETF shares directly for the underlying cryptocurrency assets rather than receiving cash. This mechanism is standard in traditional ETFs and helps reduce trading costs while providing tax advantages for investors.

The SEC has not provided a timeline for when it will make a final decision on Fidelity’s proposals. The regulatory agency recently acknowledged a similar request from BlackRock for its spot Ethereum ETF, though acknowledgment does not guarantee approval.

Fidelity joins other major issuers facing regulatory delays. In April, the SEC postponed rulings on in-kind redemption proposals from WisdomTree for its Bitcoin Fund and Ethereum Fund. VanEck’s Bitcoin Fund also received a similar delay on its proposal.

Multiple Issuers Push for ETF Enhancements

Several asset managers believe in-kind redemptions will bring operational efficiency to cryptocurrency ETFs. Industry participants are pressing the SEC to adopt consistent standards for all issuers, especially as other regions move forward with similar approvals.

Canada, Hong Kong, and parts of Europe have already approved comparable features for crypto-based ETFs. This international precedent adds pressure on U.S. regulators to consider similar flexibility for domestic products.

The SEC’s approach contrasts with its recent acknowledgment of BlackRock’s filing. While this does not mean approval, it signals that the agency is considering the feature more seriously for some issuers.

BlackRock and other major asset managers aim to structure their cryptocurrency products in ways that mirror traditional ETFs. This includes features that have become standard in equity and bond-based exchange-traded funds.

Upcoming Regulatory Deadlines

The SEC faces several upcoming deadlines for other crypto ETF features beyond in-kind redemptions. The agency has set a June 1 deadline to decide on Grayscale’s request to add staking to its spot Ethereum ETF.

Another decision is expected by June 3 for Bitwise and WisdomTree’s updated filings. These proposals also seek approval for in-kind redemptions alongside other operational enhancements.

The SEC recently delayed its decision on a proposal by 21Shares to introduce staking into its Ethereum ETF. This follows a broader pattern of postponed decisions regarding crypto-linked ETFs over recent months.

Staking involves earning rewards by helping secure blockchain networks. This feature is not currently permitted in U.S.-approved spot crypto ETFs, though industry observers expect this could change.

Paul Atkins was recently confirmed as the new SEC Chair by the Senate. Atkins is expected to take a fresh approach to crypto ETF policies, potentially affecting future decisions on both staking and in-kind redemptions.

The regulatory delays create uncertainty for fintech companies developing cryptocurrency payment solutions. Without clear guidance on ETF features, these companies face challenges in planning competitive products and services.

Cash redemptions currently required by most crypto ETFs can trigger capital gains taxes at the fund level. These taxes are then passed to shareholders, creating additional tax burdens compared to in-kind redemption structures.

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