Spot Bitcoin and Ethereum ETFs Gain SEC Approval for In-Kind Redemptions

SEC Greenlights In-Kind Redemptions for Spot Bitcoin and Ethereum ETFs in Regulatory Milestone

The U.S. Securities and Exchange Commission (SEC) has approved in-kind creation and redemption mechanisms for all spot bitcoin (BTC) and ethereum (ETH) exchange-traded funds (ETFs), representing a significant step forward in the regulatory treatment of digital asset products.

The new framework allows authorized participants—typically institutional trading firms—to issue and redeem ETF shares directly in BTC or ETH rather than relying on cash settlements. Market participants have long argued that in-kind transactions offer a more efficient, transparent, and cost-effective structure for managing ETF liquidity and arbitrage.

This marks the first major crypto-focused policy shift under the leadership of new SEC Chair Paul Atkins, who emphasized a market-friendly approach to digital assets.

“It’s a new day at the SEC,” said Atkins. “Our goal is to develop a regulatory framework that supports innovation while protecting investors. These approvals will help reduce costs and improve efficiency across crypto ETFs.”

The change follows a January request by BlackRock to enable in-kind transactions for its iShares Bitcoin Trust (IBIT), with other issuers—including Fidelity and Ark Invest—quickly filing similar amendments.

Until now, all spot bitcoin ETFs approved since January 2024 were restricted to cash-only mechanisms, a model widely seen as inefficient and cumbersome for institutional market makers.

In a further development, the SEC also approved an increase in position limits for options tied to IBIT, allowing larger derivative exposures. Position limits are regulatory controls intended to reduce systemic risk and prevent market manipulation. The adjustment signals the SEC’s growing confidence in the maturity and liquidity of crypto-related ETFs.

These regulatory shifts are expected to enhance participation from institutional investors by streamlining operations and enabling more robust hedging and arbitrage strategies.

The approvals reflect a broader policy shift under Atkins’ leadership—one that appears to align crypto investment products more closely with the regulatory treatment of traditional financial instruments.