‘It’s a new day’: SEC approves in-kind redemptions for spot Bitcoin, Ethereum ETFs

Key Takeaways

The U.S. SEC has greenlighted an in-kind basis for crypto ETFs to enhance tax efficiency and cut operating costs. But only institutional investors will benefit in the immediate future. 

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On the 29th of July, the U.S. Securities and Exchange Commission (SEC) greenlighted in-kind creations and redemption for spot crypto ETPs (exchange-traded products). 

Now, authorized participants (APs) — typically large institutions — will be able to directly exchange shares of the ETPs for the underlying crypto assets instead of cash. 

What changes and what doesn’t

In a statement, the SEC chair, Paul Atkins, termed the move a ‘new day’ at the agency, adding that it would improve the cost and efficiency of the ETPs. 

“Investors will benefit from these approvals, as they will make these products less costly and more efficient.”

Why in-kind method matter

The change will apply to all current spot Bitcoin [BTC] and Ethereum [ETH] ETFs and other approved crypto ETFs. 

According to Bloomberg’s Senior ETF Analyst Eric Balchunas, while this unlocks operational advantages, it’s still a backend change that won’t directly affect retail users, at least not yet.

Retail investors cannot redeem BlackRock’s IBIT for physical BTC, although ETFs with that feature may be coming, Balchunas added.

SEC Commissioner Hester Pierce also welcomed the in-kind basis, stating that the ETF issuers have sought it since the products were approved last year. 

The agency also approved the increase of the options limit on BlackRock’s iShares Bitcoin Trust ETF by 10X from 25K to 250K.

Balchunas added that the increase was ‘pretty big’ as IBIT was already amongst the most active in ETF options before the raise. 

“And now the limit has just been raised 10x. This will help bring in bigger institutions and be helpful during volatility. Pretty big.” 

Is ETH catching up?

That said, the spot BTC ETFs have lagged behind ETH ETFs in the past few weeks, with a whopping 80% drop in inflows in the past week alone. 

Matter of fact, ETH ETFs’ market share has increased to 13% while BTC ETFs’ dropped from 90% to 82% in the past two months. ETH ETFs have seen renewed market interest amid tokenization and stablecoin buzz. 

But Balchunas projected that ETH ETFs’ market share growth may stall at 20%.