The U.S. Securities and Exchange Commission (SEC) has officially approved in-kind redemptions for crypto ETPs, a structural shift that could dramatically reshape the landscape for institutional and retail crypto investors. This landmark move may pave the way for greater efficiency, lower fees, and deeper liquidity in the Bitcoin ETF market—and beyond.
Crypto ETPs Get Structural Overhaul
Previously, all U.S.-based crypto ETPs (exchange-traded products) were restricted to cash-only creations and redemptions. This meant that when an authorized participant (AP) wanted to create or redeem shares of a Bitcoin ETF, they were required to settle the transaction in U.S. dollars rather than in Bitcoin itself.
Now, following a formal update issued by the SEC, issuers can opt to handle these transactions in-kind—that is, using the underlying crypto asset rather than fiat. The new guidance applies to spot-based ETPs that hold Bitcoin and other digital assets directly.
Why In-Kind Redemptions Matter
In-kind redemptions are already standard practice for most traditional ETFs, especially those tracking commodities or equities. They allow for lower operational friction, better tax efficiency, and reduced arbitrage gaps between the net asset value (NAV) and market price.
For crypto ETPs, this change is monumental. It enables institutional players—such as large hedge funds or trading desks—to deliver or receive Bitcoin directly during the share creation/redemption process. This removes the inefficiencies and slippage risks introduced by mandatory fiat conversions.
According reported by Bitbo, the total Bitcoin held across U.S. ETFs has surged past 1 million BTC. With in-kind transactions now allowed, asset managers can optimize ETF flows and potentially expand the market to a broader range of institutional participants.
Impact on Bitcoin Liquidity and Market Dynamics
The SEC’s approval may enhance Bitcoin’s market liquidity by improving the connection between ETFs and spot exchanges. With in-kind processes, liquidity providers can more efficiently arbitrage between ETF shares and the underlying Bitcoin, helping to tighten spreads and stabilize prices.
In addition, this move could drive greater institutional confidence in spot crypto ETPs. As noted in a recent analysis from ETF expert James Seyffart during an interview on Bloomberg TV, in-kind models are viewed as more robust and scalable—especially during volatile markets when cash redemptions might cause liquidity strain.
Which Crypto ETP Issuers Will Benefit?
Major issuers like BlackRock (IBIT), Fidelity (FBTC), ARK/21Shares, and Grayscale are now likely to update their ETF prospectuses to include in-kind creation options. This could also improve competitiveness among funds, prompting fee reductions or product enhancements as part of their offerings to investors.
While the SEC has not mandated in-kind redemptions, the fact that it’s now permitted gives issuers flexibility to align with traditional ETF mechanics. Expect upcoming filings from firms like VanEck and Bitwise, who may now feel more confident expanding their crypto ETP products.
A Signal of Regulatory Maturity?
This development is not just a technical adjustment—it’s a sign that U.S. regulators are warming to digital assets as part of mainstream finance. After years of hesitancy, the SEC’s decision marks a shift toward greater parity between traditional and crypto-based financial instruments.
According to ETF strategist Eric Balchunas, the move could even set a precedent for future Ethereum or Solana ETPs, assuming these products also gain spot approval. “It’s a green light for infrastructure,” he noted.
Final Thoughts: Crypto ETPs Just Got an Upgrade
The SEC’s approval of in-kind redemptions for crypto ETPs is a clear nod to the growing sophistication of the digital asset ecosystem. It removes a long-standing inefficiency, empowers institutional participants, and could strengthen the appeal of Bitcoin ETFs as a low-cost, liquid, and tax-efficient investment vehicle.For investors, this may mark the beginning of a new era in crypto finance, where digital assets integrate more seamlessly with traditional market structures—and where regulatory clarity finally unlocks scalable, institutional-grade investment products.
