SEC Approval Likely for Bitcoin and Ethereum ETF Issuers to Facilitate In-Kind Redemptions, Predicts Analyst
In a recent development, the Securities and Exchange Commission (SEC) has yet to approve in-kind redemptions for Bitcoin and Ethereum exchange-traded funds (ETFs), despite several major ETF providers, such as BlackRock, Fidelity, VanEck, WisdomTree, Ark 21Shares, and Invesco Galaxy, formally applying for permission to implement this mechanism.
The SEC's reluctance to approve in-kind redemptions is driven by concerns over regulatory and risk-related issues, including custody standards, risk management practices for crypto holdings, anti-money laundering controls, and the overall regulatory framework needed to ensure investor protection in the relatively new crypto ETF domain.
However, the SEC has shown signs of increasing regulatory confidence in crypto ETFs, issuing a supervisory framework in early July 2025 aimed at streamlining approval processes and specifying custody, disclosure, and risk management expectations. This indicates progress toward eventual approval but reflects the SEC's cautious stance before allowing in-kind redemption models that are standard for traditional ETFs.
Traditional ETFs allow in-kind creations and redemptions, meaning shares are exchanged directly for underlying assets rather than cash. Crypto ETFs, including Bitcoin ETFs, are seeking to adopt in-kind redemptions to reduce costs, improve tax efficiency, and align with global standards.
Currently, existing Bitcoin ETFs still require authorized participants to redeem shares for cash, which then buys or sells Bitcoin on behalf of the fund. The SEC's delay in approving in-kind redemptions has raised concerns over security risks posed by the process.
Recent filings by five ETF issuers suggest potential progress and fine-tuning with the SEC regarding the addition of in-kind redemptions to crypto-based funds. The SEC has also delayed its decision on in-kind redemptions for the Bitwise Bitcoin ETF Trust and Bitwise Ethereum ETF until July 16.
James Seyffart, Bloomberg ETF analyst, posted on social media that more positive signs are indicating the likelihood of Bitcoin and Ethereum ETFs obtaining the ability to do in-kind creation and redemption. The SEC's ranks have grown increasingly crypto-friendly under the Trump administration, with the SEC receiving a number of crypto-related ETF proposals since President Trump came into office and vowed to improve regulatory clarity for the crypto industry.
The approval of in-kind redemptions for Bitcoin and Ethereum ETFs would mark a significant evolution in crypto ETF trading efficiency and market alignment. The SEC's careful consideration of this issue underscores its commitment to protecting investors while fostering innovation in the digital asset space.
[1] SEC Website - SEC Delays Decision on In-Kind Redemptions for Bitcoin and Ethereum ETFs [2] CoinDesk - Existing Bitcoin ETFs Still Require Cash-Only Redemptions [3] Decrypt - SEC Issues Supervisory Framework for Crypto ETFs, Signaling Approval Progress [4] Bloomberg - SEC Delays Decision on In-Kind Redemptions for BlackRock's iShares Ethereum Trust (ETHA) to August 26
- The Securities and Exchange Commission (SEC) is yet to approve in-kind redemptions for Bitcoin and Ethereum exchange-traded funds (ETFs), despite several major ETF providers applying for permission.
- The SEC's delay in approving in-kind redemptions is due to concerns over regulatory and risk-related issues, including custody standards, risk management practices, anti-money laundering controls, and the overall regulatory framework.
- However, the SEC has shown signs of increasing regulatory confidence in crypto ETFs, and has issued a supervisory framework aimed at streamlining approval processes.
- Crypto ETFs, including Bitcoin ETFs, are seeking to adopt in-kind redemptions to reduce costs, improve tax efficiency, and align with global standards.
- Currently, existing Bitcoin ETFs still require authorized participants to redeem shares for cash, which then buys or sells Bitcoin on behalf of the fund.
- Recent filings by five ETF issuers suggest potential progress and fine-tuning with the SEC regarding the addition of in-kind redemptions to crypto-based funds, with the SEC delaying its decision on in-kind redemptions for the Bitwise Bitcoin ETF Trust and Bitwise Ethereum ETF until July 16.
