The U.S. Securities and Exchange Commission (SEC) has officially approved in-kind creation and redemption mechanisms for spot Bitcoin and Ethereum exchange-traded funds (ETFs), marking a pivotal moment in crypto asset regulation and ETF market development.
In-Kind Redemptions Now Allowed for Crypto ETFs
On July 29, the SEC gave green light to accelerated approvals for major exchangesâincluding Nasdaq, NYSE Arca, and Cboe BZXâto permit in-kind transactions for ETFs holding spot Bitcoin and Ethereum. This approval includes industry giants like BlackRock, Fidelity, VanEck, and Ark21, whose crypto ETFs can now exchange underlying crypto assets without liquidating to cash.
This regulatory shift makes crypto ETFs more efficient and less costly for institutional participants.
Previously, ETF issuers were forced to use a cash redemption model, requiring them to sell underlying Bitcoin or Ethereum and return cash to investors. The in-kind modelâstandard across traditional equity ETFsâallows authorized participants to directly swap ETF shares for the underlying crypto, reducing tax exposure and enhancing transparency.
Regulatory Framework Expands for Digital Assets
SEC Chairman Paul Atkins described the approvals as part of a broader effort to create a âfit-for-purposeâ regulatory framework for crypto markets. The move aligns digital asset ETFs with the operational standards of traditional exchange-traded products (ETPs).
âThis decision aligns with standard practices and helps build a dynamic market structure, benefiting all American investors,â Atkins noted in the announcement.
Implications for Future Crypto ETFs
With this precedent, ETF analysts expect future altcoin ETF proposalsâsuch as those tracking Solana, XRP, or other major Layer-1 assetsâto include in-kind mechanisms from inception. According to ETF expert James Seyffart, these tools may now become default in crypto fund structures.
Market makers and institutional investors will likely benefit most, as they are the âauthorized participantsâ handling in-kind transactions.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.
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