In a significant boost for the crypto industry, the U.S. Securities and Exchange Commission (SEC) has approved in-kind creation and redemption for all spot Bitcoin and Ethereum exchange-traded funds (ETFs). But what does this actually mean?
On Tuesday, July 28, the SEC issued finalized orders permitting authorized participants to create and redeem shares of crypto exchange-traded products (ETPs) using the actual underlying digital assets—Bitcoin or Ethereum—instead of cash.
This approval applies to all existing spot Bitcoin and Ethereum ETFs, including those managed by major issuers such as BlackRock, Fidelity, Ark Invest, and VanEck.
The green light was given through accelerated processes to leading exchanges like Nasdaq, NYSE Arca, and Cboe BZX, which had filed requests to enable in-kind transactions as an alternative to the previously required cash-only system.
With this move, these exchanges can now offer more efficient ETF structures, aligning crypto ETFs with industry norms already used for traditional funds.
What Is In-Kind Creation and Redemption—And Why Does It Matter?
In-kind creation and redemption is a mechanism where authorized participants—typically institutional firms or market makers—exchange ETF shares directly for the underlying asset, rather than using cash.
For crypto ETFs, this means that instead of receiving fiat currency when redeeming shares, participants get Bitcoin or Ethereum. Similarly, to create new ETF shares, they deposit those digital assets directly.
This model is widely regarded as more efficient. It reduces the need to convert assets into cash, cuts down on transaction costs, and limits taxable events—making the entire process more streamlined. It also helps ETF shares track the actual value of the underlying crypto more closely by allowing shares to be added or removed based on investor demand more easily.
Experts believe this shift could significantly boost the crypto ETF market by attracting more institutional investors, improving liquidity and pricing in the secondary market, and increasing tax efficiency by limiting capital gains distributions to shareholders.
Jamie Selway, Director of the SEC’s Division of Trading and Markets, welcomed the change, stating it “provides flexibility and cost savings” to ETF issuers, market participants, and the broader market.
Analysts like Bloomberg’s James Seyffart have long advocated for in-kind redemptions, noting that the process reduces unnecessary intermediaries and simplifies ETF operations overall.
What happens next?
With the SEC’s approval of in-kind creation and redemption, ETF issuers are now expected to roll out the updated mechanisms in the coming weeks. Exchanges that received accelerated approvals—such as Nasdaq, NYSE Arca, and Cboe BZX—are actively preparing to support the new structure.
Analysts believe this policy shift could set a precedent for future ETF proposals tied to alternative cryptocurrencies (altcoins), potentially allowing in-kind processes from the outset.
“The coming approvals for altcoin ETFs [are] likely going to allow in-kind from the get-go. More movement in the right direction IMO,” Bloomberg analyst James Seyffart noted in a post on X Tuesday.
How did we get here?
The SEC’s latest move marks a significant shift from its earlier position under former Chair Gary Gensler, who mandated cash-only redemptions when the first spot Bitcoin ETFs were approved in January 2024.
The regulatory tone began to change with the appointment of Paul Atkins as SEC Chair earlier this year. Known for his market-friendly views, Atkins quickly expressed support for a more “fit-for-purpose” regulatory framework for crypto assets.
“I am pleased the Commission approved these orders permitting in-kind creations and redemptions for a host of crypto asset ETPs. Investors will benefit from these approvals, as they will make these products less costly and more efficient,” Atkins said in a statement accompanying the announcement.
Working closely with SEC Commissioner Hester Peirce—widely known as “Crypto Mom” for her pro-innovation stance—Atkins spearheaded a broader review of crypto ETF policy. The two collaborated on efforts to modernize the agency’s approach, beginning with proposals to enable in-kind mechanisms earlier this year.
Peirce, who now leads the SEC’s newly formed Crypto Task Force, played a key role in shaping the updated policy landscape. Under her leadership, the task force has worked to roll back restrictive rules and introduce practical reforms, including the expansion of in-kind redemptions across digital asset ETFs.
