SEC’s Groundbreaking Move: In-Kind Redemption for Crypto ETFs Boosts Market Confidence

The U.S. Securities and Exchange Commission (SEC) has taken a pivotal step by approving in-kind creations and redemptions for Bitcoin and Ethereum Exchange-Traded Funds (ETFs). This change marks a significant departure from previous cash-only settlement methods, offering new operational flexibility and cost efficiency to market participants.

Embracing Flexibility: The New Redemption Approach

Authorized Participants (APs) such as major financial institutions like JP Morgan and Jane Street can now redeem ETF shares directly using Bitcoin or Ethereum, rather than cash. This reduces transaction costs and mitigates the risks associated with price slippage.

“This mechanism offers cost savings and flexibility for ETF issuers, APs, and investors, enhancing market efficiency,” commented SEC Chairman Paul Atkins.

Previously, in 2024, when Bitcoin and Ethereum spot ETFs were approved, only cash-based redemption was allowed. The shift to include in-kind options opens up a world of possibilities, improving operational efficiency.

A Wave of Positive Policy Changes

July has been a month of favorable policies for the crypto industry. The U.S. Congress passed the GENIUS Stablecoin Act, and both the CLARITY Market Structure Act and the Anti-CBDC Surveillance Act are undergoing Senate review, signaling legislative support for the crypto sector.

These policy enhancements have sparked an influx of capital into the market. According to SoSoValue, Bitcoin spot ETFs saw inflows of $6.09 billion in July, bringing the total asset size to $152.7 billion. Ethereum ETFs also recorded historic net inflows of $5.4 billion, highlighting renewed investor confidence.

Overall, the total net inflows for Bitcoin and Ethereum spot ETFs reached $11.4 billion, confirming a robust resurgence in both market interest and involvement. The SEC’s approval of the in-kind redemption mechanism is a testament to the evolving dynamics in the crypto market and its growing integration with traditional financial systems.