The U.S. Securities and Exchange Commission (SEC) has authorized in-kind creation and redemption for Crypto ETFs. This shift means an end to the old cash-only model, which can result in lower transaction costs and enhanced fund efficiency. The shift marks a significant move toward aligning Crypto ETFs with traditional ETF practices, enhancing investor access and market liquidity.
In-Kind Model Now Allowed for Bitcoin and Ether ETPs
The SEC passed new rules on July 29 regarding spot Bitcoin and Ether exchange-traded products (ETPs). Through the orders, authorized participants will be able to create the shares and redeem them using actual cryptocurrencies instead of cash. This ruling is contrary to the previous 2024 plan, which mandated cash payments only.
I'm pleased to share the SEC approved in-kind creations and redemptions for crypto ETPs. The approvals continue to build a rational regulatory framework for crypto, leading to a deeper and more dynamic market, which will benefit all American investors. https://t.co/UbQ9pXlBpD pic.twitter.com/DX8ub16Ey3
— Paul Atkins (@SECPaulSAtkins) July 29, 2025
By allowing in-kind transfers, the SEC has opened new operational flexibility for Crypto ETFs and their managers. Through such transfers, the participants are able to trade ETF stocks against Bitcoin or Ether without involving the fiat system. As a result, the update lowers friction and brings Crypto ETFs in line with standard ETF practices.
According to chairman Paul Atkins, one of his priorities in the role has been creating a fit-for-purpose regulatory framework for crypto asset markets. The ruling endorses such a vision and touches on major operational concerns posed by the market players in 2024.
Benefits for Market Makers and Institutional Investors
Market makers and fund issuers expect to benefit significantly from this development. In-kind redemptions enable them to manage crypto inventory better while reducing conversion-related expenses. Therefore, the rule change supports lower transaction costs across the board.
Institutional investors are particularly likely to benefit from better tax efficiency. Instead of triggering capital gains through crypto sales during redemptions, they can now receive assets directly. That means capital gains can be deferred until the investor sells the crypto assets.
The SEC also approved new filings allowing for a mixed spot Bitcoin and Ether ETP. Additionally, the Commission approved options and FLEX options on select spot Bitcoin products. The SEC raised position limits for Bitcoin ETF options, bringing them in line with general options standards.
Crypto ETFs Align Further With Traditional ETF Structures
This shift aligns Crypto ETFs more closely with traditional ETFs based on stocks or commodities. Traditional ETFs often use in-kind transactions to minimize costs and optimize tax strategies. Now, the crypto market can adopt the same mechanisms.
Crypto ETFs, launched in early 2024, have already attracted tens of billions in assets under management. The in-kind model could accelerate that growth as issuers adapt operations to the more efficient structure. Improved liquidity and tighter spreads are also expected.
By simplifying redemptions, the SEC hopes to draw more institutional investors into the market. These participants were previously cautious due to cash-only requirements and their impact on capital gains. With the new model, operational constraints are significantly reduced.
Summary
The SEC approved in-kind redemptions for spot Bitcoin and Ether Crypto ETFs, replacing the earlier cash-only model. This update brings Crypto ETFs in line with traditional ETFs, improving operational efficiency and tax handling. Fund issuers, market makers, and institutional investors are expected to benefit from reduced costs and increased flexibility. The decision also clarified new trading options and ETP listings.
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FAQs
1.What are in-kind redemptions for Crypto ETFs?
The redemption in terms of share exchange would enable an investor to acquire the cryptocurrency when redeeming ETF shares rather than cash.
- What is the significance of the decision of the SEC?
It reduces transaction costs, improves tax efficiency, and makes Crypto ETFs function more like traditional ETFs.
- Who is going to be the greatest beneficiary of this change?
Having better flexibility, liquidity, and favorable taxation advantages, fund managers, market makers, and institutional investors.
- Is it the case with all cryptocurrencies?
No, the approval at the moment is to the spot Bitcoin and Ether ETPs.
- Will this be an influence on Crypto ETF development?
Yes, analysts believe that asset under management will grow faster because of less friction and with the expanded involvement of institutions.
Glossary of Key Terms
Crypto ETFs – Exchange-traded funds that track the price of cryptocurrencies like Bitcoin or Ether.
In-kind redemption expression: The process in which ETF stocks are redeemed by the underlying asset, rather than cash.
ETP – Exchange-traded product: a financial instrument on an exchange that follows the assets in the form of stocks or cryptocurrencies.
Authorized participant: A participant in the securities market, such as a financial institution, approved to create or redeem the ETF shares with the issuer of the fund.
Capital gains: the profit from buying and selling an asset, which is usually taxed unless it is deferred through non-cash exchanges.
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