The Securities and Exchange Commission voted Tuesday to approve in-kind creations and redemptions for crypto exchange-traded funds, marking a departure from the cash-only structure previously required for spot Bitcoin and Ethereum ETFs, according to an SEC press release.
The approval brings crypto ETFs in line with other commodity-based ETFs approved by the Commission, allowing authorized participants to deliver or receive the underlying Bitcoin or Ether assets directly rather than transacting exclusively in cash, according to the SEC.
The approval addresses what Federico Brokate, head of U.S. business at 21Shares, called “a long-standing structural barrier that has limited scalability and cost efficiency for investors.” The change is expected to enhance market efficiency and reduce investor costs
“Investors will benefit from these approvals, as they will make these products less costly and more efficient,” said SEC Chairman Paul S. Atkins in the press release.
The new structure enhances primary market efficiency, improves secondary market spreads, and strengthens overall price discovery, according to Brokate. In-kind functionality also gives market makers and liquidity providers greater flexibility to manage risk during periods of heightened volatility.
Previously approved spot Bitcoin and Ethereum ETFs were limited to creations and redemptions on an in-cash basis, according to the SEC. The cash-only requirement created operational inefficiencies that distinguished crypto ETFs from traditional commodity-based products.
Jamie Selway, director of the Division of Trading and Markets, said the decision provides “flexibility and cost savings to ETP issuers, authorized participants, and investors, resulting in a more efficient market,” according to the SEC release.
21Shares has “long operated in-kind models across our global ETP platform” and has seen firsthand how they reduce costs for investors, Brokate said. He views this as “a foundational development that will accelerate the next phase of crypto ETF adoption in the U.S.”
The Commission also approved other crypto-related orders, including exchange applications for mixed Bitcoin-Ether ETPs and options on certain spot Bitcoin ETFs, according to the SEC.
The regulatory change reflects what Atkins called “a new day at the SEC” and his priority of “developing a fit-for-purpose regulatory framework for crypto asset markets,” according to the press release.
