SEC Greenlights In-Kind Crypto ETF Transactions, Major Game Changer for Bitcoin & Ether Funds

30/07/2025 admin

Key Takeaways:

The SEC now allows in-kind creations and redemptions for crypto ETFs, removing the mandatory cash-only rule.
This change brings crypto ETPs in line with traditional commodity-based ETFs, cutting costs and boosting efficiency.
Analysts expect increased institutional adoption and liquidity, setting the stage for a new phase in crypto ETF growth.

The U.S. Securities and Exchange Commission (SEC) has made a major rule change which will soon benefit crypto holders. The move is hoped to cut costs, increase pricing efficiency and encourage increased institutional participation in crypto ETFs, particularly those that track Bitcoin and Ether.

SEC Drops Cash-Only Requirement for Crypto ETFs

So far, any crypto ETP was limited to handle only cash-based creation and redemption, i.e., authorized participants (APs) of a crypto ETP were obliged to cash-in crypto assets when creating or redeeming an ETF share. This was not only time consuming, costly but also subject to pricing discrepancy problems.

On July 29, 2025, the SEC officially approved in-kind creation and redemption mechanisms for crypto ETFs, allowing market makers to directly deposit or withdraw cryptocurrencies like Bitcoin (BTC) or Ether (ETH) without cash conversion. This rule brings crypto ETPs closer to traditional commodity ETFs that already benefit from in-kind flexibility.

“It’s a new day at the SEC,” said Chairman Paul S. Atkins. “These orders will make crypto-based products less costly and more efficient.”

According to the SEC’s press release, the new framework aims to build a rational, long-term regulatory structure that treats crypto more like established asset classes. It also reflects a “merit-neutral” approach, evaluating crypto ETPs using the same standards applied to non-crypto commodities.

Why In-Kind Matters for the Crypto Market

In-kind mechanism is not a technical change; it is a paradigm change. It opens up operational benefits which makes ETFs more appealing to both issuers and investors.

Key Benefits of In-Kind Creation & Redemption

Lower Costs: Without the need to convert to cash, issuers avoid unnecessary fees and slippage from crypto-to-fiat conversions.
Faster Settlement: Transfers can be processed directly on-chain, reducing delays.
Tighter Price Alignment: In-kind transfers allow for arbitrage opportunities that keep ETF share prices closely aligned with the underlying assets.
Tax Efficiency: In certain jurisdictions, in-kind redemptions are treated as non-taxable events, which could benefit long-term investors.

These benefits reflect the dynamics of gold or commodity ETFs, wherein duly authorized participants are able to sell physical commodities relative to ETFs shares. Crypto ETFs are falling into that league, more or less on equal terms.

Institutional Adoption Set to Accelerate

Many analysts view this change as the “last major hurdle” before widespread institutional adoption of crypto ETPs.

According to Jamie Selway, Director of the SEC’s Division of Trading and Markets, in-kind transactions provide “flexibility and cost savings” for all market participants. That would cover big banks, hedge funds and pension funds who would fear to tread because of the inefficiencies in the cash model.

ETF issuers such as BlackRock, Fidelity, and Grayscale have been advocating this update by some of the institutional investors long. They state that at the time of their launch, crypto ETFs were structurally at a disadvantage to their equity and commodity opposites due to the absence of in-kind functionality.

“In-kind redemptions close the gap between the ETF’s price and its net asset value,” said MartyParty, a well-known crypto analyst. “It’s the missing piece that brings real scale.”

In parallel, the SEC approved other rule changes, such as:

Options trading on spot Bitcoin ETFs
FLEX options for BTC-based ETPs
Applications for mixed BTC-ETH ETFs
Increased position limits on crypto-based derivatives (up to 250,000 contracts)

Such a wide regulatory wave indicates that SEC is eager to mainstream crypto financial products into the financial markets as a whole.

What This Means for Crypto ETF Issuers and Investors

To the issuers, this shift will translate to enhanced flexibility and competitiveness of operations. To investors that means reduced spreads, reduced inefficiencies and even expense ratio reductions in the long run.

Although in kind contributions may not be directly visible in price charts, it adds to the structure and longevity of the broader crypto ETF ecosystem. The decision is also symbolic, an indication that the SEC is prepared to consider digital assets as part of the modern financial system, not outside of it.

The post SEC Greenlights In-Kind Crypto ETF Transactions, Major Game Changer for Bitcoin & Ether Funds appeared first on CryptoNinjas.

CryptoNinjas