SEC approves in-kind redemptions for spot Bitcoin and Ethereum ETFs, increases options limits

The U.S. Securities and Exchange Commission on Tuesday voted to approve orders to permit in-kind creations and redemptions by authorized participants for crypto asset exchange-traded products. The SEC also said it voted to approve applications looking to list and trade a fund that holds both spot bitcoin and spot ETH, options on "certain spot bitcoin ETPs," and also ones with an increase in position limits.

The SEC then subsequently granted "accelerated approvals" to the Nasdaq Stock Market LLC, NYSE Arca, Inc., Cboe BZX Exchange to allow for in-kind creations and redemptions for several ETFs, including BlackRock's bitcoin ETF and Ethereum ETF. That list also includes ETFs from Ark21, Fidelity, VanEck, Franklin Templeton, among others.

"It's a new day at the SEC, and a key priority of my chairmanship is developing a fit-for-purpose regulatory framework for crypto asset markets,” SEC Chairman Paul Atkins said in a release. "Investors will benefit from these approvals, as they will make these products less costly and more efficient."

ETF issuers have been seeking in-kind redemptions for months, and SEC Commissioner Hester Peirce said in June that in-kind redemptions for crypto ETFs were "on the horizon." Ahead of the SEC's approvals for spot bitcoin ETFs over a year ago, firms were hashing out technical details over how the redemption process would work for such products. The SEC favored a cash model that required firms like BlackRock to move bitcoin out of storage, sell it right away, and then give the cash back to the investor.

"Today's approvals continue to build a rational regulatory framework for crypto, leading to a deeper and more dynamic market, which will benefit all American investors," Atkins said. "This decision aligns with the standard practices for similar ETPs."

The "authorized participants" mentioned in the release likely refer to major Wall Street firms and market makers — not retail traders — to trade in shares of their ETFs for the underlying asset.

"[T]he vast majority of people won't even see a difference because the products on the market now already trade extremely efficiently," Bloomberg Intelligence ETF analyst James Seyffart said earlier this month. "This will treat crypto ETPs the same as other ETPs are treated."

Seyffart said on Tuesday in a post on X that pending ETF proposals tracking other cryptocurrencies will probably allow in-kind.

"The coming approvals for alt coin ETFs likely going to allow in-kind from the get go," he said.