SEC Approves In-Kind Redemptions for Spot Bitcoin, Ethereum ETFs

Key Insights:

• SEC permits in-kind creations and redemptions for all spot Bitcoin and Ethereum ETFs.
• BlackRock, Ark21, and Fidelity among issuers approved under the accelerated process.
• Options position limits increased, enhancing ETF flexibility for institutional investors.

The U.S. Securities and Exchange Commission approved in-kind creations and redemptions for spot Bitcoin and Ethereum ETFs on July 29. This move allows institutional players to exchange ETF shares directly for BTC or ETH, eliminating the prior cash-only restriction. The ruling applies to ETFs from BlackRock, Ark21, Fidelity, and other major issuers.

Until now, ETF managers were forced to liquidate crypto into cash before processing redemptions, creating operational inefficiencies. The in-kind process enables a more seamless and tax-efficient mechanism that mirrors standard equity ETF operations. Bloomberg analyst James Seyffart noted this shift will likely extend to future altcoin ETF filings.

The SEC also granted accelerated approvals to exchanges like Nasdaq, NYSE Arca, and Cboe BZX. These platforms can now support in-kind processing for listed crypto ETFs. The regulatory change comes after months of anticipation and industry proposals, including a January request from BlackRock for its iShares Bitcoin Trust.

ETF Options Limits Raised as Market Structure Matures

Alongside the redemption rule change, the SEC approved an increase in position limits for ETF options contracts. This decision allows traders to hold more contracts tied to ETFs like BlackRock’s IBIT, reflecting rising liquidity and demand. Position limits are designed to manage risk while allowing flexibility for institutional hedging.

The new rules signal that the SEC is more comfortable with crypto-linked market structures. Commissioner Paul Atkins stated the goal is a fit-for-purpose regulatory framework that benefits investors through lower costs and greater efficiency. These actions also highlight the agency’s shift under Atkins toward broader crypto integration.

Spot Bitcoin and Ethereum ETFs recorded $11.2 billion in inflows in July, according to CoinShares. Ethereum products saw $1.6 billion of that, outperforming even Bitcoin in weekly inflows. Analysts now expect similar in-kind treatment for upcoming ETF applications involving altcoins like Solana and XRP.