In a major milestone for the digital asset industry, the U.S. Securities and Exchange Commission (SEC) has officially approved in-kind creation and redemption for cryptocurrency exchange-traded products (ETPs), including spot Bitcoin and Ether ETFs.
This regulatory shift permits authorized participants to exchange ETF shares directly for cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), rather than solely relying on cash transactions. The change is designed to streamline fund operations, lower costs, and bring greater efficiency to crypto-based financial products.
SEC Chairman Paul Atkins hailed the decision, stating, “This is a critical shift that will lower expenses and enhance efficiency for crypto investment products. It also reflects the Commission’s evolving commitment to a transparent regulatory framework for digital assets.”
Why It Matters:
In-kind redemptions are widely used in traditional ETFs tied to stocks and bonds. This process allows institutional players to swap ETF shares for underlying assets without triggering taxable events or incurring large transaction fees. Bringing this model to crypto ETFs helps align them with more mature financial instruments.
This change improves liquidity, narrows spreads, and enhances overall transparency—factors that are particularly important for large-scale institutional investors.
A Shift in the SEC’s Stance:
Previously, the SEC only permitted cash-based redemptions for crypto ETFs, citing concerns over custody and market manipulation. However, growing confidence in crypto custody infrastructure and bipartisan support for crypto regulation have helped shift regulatory sentiment.
Jamie Selway, Director of Trading and Markets at the SEC, emphasized, “This isn’t just a technical change. It signals a broader acceptance of crypto within traditional finance. More crypto policy momentum is likely to follow.”
Legislators in Washington are also taking steps to overhaul digital asset regulation, with new bills passed focusing on stablecoins, digital asset clarity, and restrictions against central bank digital currencies (CBDCs).
Market Impact:
Crypto ETFs have gained massive traction among both retail and institutional investors. Spot Bitcoin ETFs in the U.S. have drawn over $6.6 billion in net inflows, with total holdings now exceeding 1.29 million BTC, according to Bitbo.
Meanwhile, BlackRock’s iShares Ethereum ETF reached $10 billion in assets under management in just 251 days, making it the third-fastest-growing ETF in history.
What’s Next:
The SEC’s approval paves the way for more advanced crypto investment vehicles, including mixed-asset ETFs that combine digital assets with traditional securities. This move also eliminates one of the final hurdles preventing crypto ETFs from achieving full parity with conventional ETPs.
Conclusion:
With the SEC greenlighting in-kind creation and redemption for crypto ETFs, the future of digital asset investing in the U.S. looks increasingly aligned with traditional finance. This regulatory advancement enhances efficiency, reduces investor costs, and further solidifies crypto’s place in mainstream markets.
