Bitcoin News Today: SEC Approves In-Kind Crypto ETP Creation, Boosting Bitcoin, Ether Fund Efficiency

The U.S. Securities and Exchange Commission (SEC) has approved in-kind creation and redemption mechanisms for crypto exchange-traded products (ETPs), marking a significant shift in the regulatory landscape for Bitcoin and Ether funds. This rule change eliminates the previous requirement that authorized participants convert cryptocurrencies into cash before creating or redeeming ETF shares, a process that was both costly and inefficient [1]. The new framework aligns crypto ETPs with traditional commodity-based ETFs, which have long utilized in-kind mechanisms to enhance pricing accuracy and reduce transaction costs [1].

Chairman Paul S. Atkins of the SEC emphasized that the decision reflects a "merit-neutral" approach, treating crypto assets under the same regulatory standards as established commodities [1]. By allowing direct on-chain transfers of cryptocurrencies like Bitcoin (BTC) and Ether (ETH), the mechanism reduces settlement delays and minimizes pricing discrepancies through arbitrage opportunities [1]. Analysts highlight that this change addresses structural disadvantages previously faced by crypto ETFs compared to equity and commodity products [1].

The benefits of in-kind transactions extend to both issuers and investors. For issuers, the removal of cash conversion fees and slippage lowers operational costs, while investors gain from tighter price alignment between ETF shares and underlying assets [1]. Additionally, in-kind redemptions may offer tax advantages in jurisdictions where such transactions are classified as non-taxable events [1]. These operational improvements are expected to attract institutional investors, including pension funds and hedge funds, which had previously hesitated due to inefficiencies in the cash-based model [1].

The SEC’s decision is part of a broader regulatory effort to integrate crypto products into mainstream finance. Concurrently approved changes include options trading on spot Bitcoin ETFs, increased position limits for derivatives, and applications for mixed BTC-ETH ETFs [1]. Jamie Selway, director of the SEC’s Division of Trading and Markets, noted that in-kind flexibility provides "cost savings" for market participants, a critical factor for large-scale adoption [1].

Industry stakeholders, including major ETF issuers like BlackRock and Fidelity, have advocated for this update, citing competitive parity with traditional asset classes [1]. MartyParty, a prominent crypto analyst, described in-kind redemptions as the "missing piece" for scaling crypto ETFs [1]. The shift is expected to enhance liquidity, reduce expense ratios over time, and lower spreads for investors [1].

The regulatory overhaul signals the SEC’s willingness to treat digital assets as part of the modern financial system. While the technical implications of in-kind transactions may not be immediately visible in price data, the structural reforms strengthen the long-term viability of crypto ETFs. Analysts predict this development will accelerate institutional participation and market maturation, potentially catalyzing a new phase of growth for crypto ETPs [1].

Source: [1] SEC Greenlights In-Kind Crypto ETF Transactions, Major Game Changer for Bitcoin & Ether Funds, [https://www.cryptoninjas.net/news/sec-greenlights-in-kind-crypto-etf-transactions-major-game-changer-for-bitcoin-ether-funds/].