The U.S. Securities and Exchange Commission (SEC) is considering allowing in-kind redemptions for spot Bitcoin and Ether exchange-traded funds (ETFs), a move that could significantly impact market liquidity and operational efficiency. Currently, spot crypto ETFs operate on a cash-creation and redemption model, requiring transactions to be settled in U.S. dollars rather than in cryptocurrency. Allowing in-kind redemptions—where ETF issuers could exchange fund shares directly for Bitcoin or Ether—could reduce costs and improve efficiency for institutional investors.
Industry experts suggest that if the SEC approves in-kind redemptions, it could bring crypto ETFs closer to traditional commodity-backed ETFs, which often allow redemptions in the underlying asset. This shift could make ETFs more attractive by eliminating the need for costly conversions between crypto and fiat currencies. Some analysts believe the SEC’s stance on in-kind transactions will be crucial in determining how the next wave of crypto-based financial products is structured.
While proponents argue that in-kind redemptions would enhance market stability and prevent unnecessary trading fees, critics warn of potential risks, including regulatory complexities and security concerns tied to direct crypto transfers. The SEC has remained cautious in its approach to crypto ETFs, and it remains unclear whether regulators will grant the change without additional oversight measures.
The potential policy shift comes as the SEC continues to refine its stance on digital asset regulations, particularly amid increasing demand for institutional crypto exposure. With the growing success of Bitcoin and Ether ETFs, any adjustment to redemption mechanisms could shape the future landscape of crypto investment products. Industry stakeholders are closely watching for further guidance from regulators in the coming months.
