Key Insights
- The United States’ SEC has just approved in-kind redemptions for Bitcoin and Ethereum-based ETFs within the country.
- This move is expected to reduce costs and make these ETPs more attractive for institutional investors.
- It is one of the biggest changes under the new SEC Chair, Paul Atkins. It is also geared toward more crypto-friendly regulations.
The US SEC has approved in-kind creations and redemptions for crypto exchange-traded products (ETPs). This major change could make these investment vehicles cheaper and more efficient.
This decision allows authorized participants to trade ETF shares directly for Bitcoin or Ethereum, instead of using cash.
It is a watershed moment in how the US Securities and Exchange Commission regulates digital asset funds. This comes despite pressure from banking firms and backing from the regulator.
US SEC Greenlights In-Kind Redemptions for Crypto ETFs
In-kind redemptions allow large investors (authorized participants) to redeem ETF shares for the underlying assets. In this case, this includes only Bitcoin and Ethereum.
Before now, these redemptions had to be made in cash. This forced issuers to sell their crypto for fiat, and pay extra fees. This also led to friction for both the issuer and the investor.
However, with this new rule, ETFs can now move assets directly. This means fewer transaction fees, lower taxes, and less price slippage for everyone. As a result, ETF issuers and investors can benefit from a smoother process overall.
Jamie Selway is the director of the US SEC Division of Trading and Markets. He noted, “In-kind creation and redemption provide flexibility and cost savings to ETP issuers.”
US SEC Shifts Toward a Pro-Crypto Stance
This policy change stands as the first major crypto-friendly decision of the US SEC under Chair Paul Atkins. Atkins, known for his market-oriented views, intends to modernize crypto regulation.
“It’s a new day at the SEC,” Atkins said. “A key priority of my chairmanship is developing a fit-for-purpose regulatory framework for crypto asset markets.”
His comments indicate that the change in sentiment is spread across the entire agency. Under previous leadership, crypto ETFs faced strict conditions, including a requirement for cash-only transactions.
That stance made operations more difficult and discouraged participation from institutional investors.
Why the Shift Now?
When the US SEC first approved spot Bitcoin and Ethereum ETFs early last year, it allowed only cash redemptions. This decision was partly due to worries about custody and compliance.
But since then, the market has matured. Custody solutions have improved, and institutional demand has surged. Seeing the potential for efficiency improvements, BlackRock, Fidelity, and Ark Invest filed for in-kind capabilities early this year.
The SEC’s change in policy is a response to these developments. It demonstrates the agency’s growing faith in cryptocurrency and recognition that the market can now support more complicated trading systems.
Institutional Participation Expected to Grow
The in-kind redemption rule could boost institutional involvement within the ETF space. There are now fewer barriers to entry and lower operating costs. This means more hedge funds, asset managers, and banks will likely trade these products.
The US SEC also raised position limits on options trading for BlackRock’s iShares Bitcoin Trust (IBIT). This adjustment allows investors to take larger positions in ETF options and enjoy better risk management, among other features.
These combined changes will drive more liquidity into Bitcoin and Ethereum ETFs. Prices will stabilize, and investor confidence will skyrocket.
ETF Growth Is Already Impressive
Crypto ETFs are seeing strong growth. US Bitcoin ETFs now hold over 1.29 million BTC, valued at around $152 billion, according to Bitbo.
Ether ETFs are also catching up quickly, with BlackRock’s iShares Ethereum ETF crossing the $10 billion mark in just 251 days. For context, this feat made it the third-fastest fund ever to do so.
Investor appetite is also strong. Spot Bitcoin ETFs recently recorded a 12-day streak of net inflows, worth $6.6 billion. These figures show the rise in interest from both retail and institutional investors.