Bitcoin News Today: SEC approves in-kind ETF creation for Bitcoin and Ethereum under new chair

The U.S. Securities and Exchange Commission has approved in-kind creation and redemption processes for all spot Bitcoin and Ethereum exchange-traded funds, marking a significant shift in the agency’s approach to cryptocurrency regulation under new Chair Paul Atkins [1]. This move removes the previous requirement that institutional investors must transact in cash when buying or redeeming shares in these ETFs, a change that is expected to reduce trading costs and operational complexity [1].

The new policy allows authorized participants—typically large institutional investors—to directly exchange Bitcoin or Ethereum for ETF shares, or redeem shares for the underlying cryptocurrency, without the need to first convert assets into cash [1]. This mechanism, which is standard in traditional ETFs, had previously been restricted for crypto products, creating additional steps that increased both costs and logistical challenges [1].

BlackRock, which launched the first spot Bitcoin ETF in January 2024, was among the first to request the change for its iShares Bitcoin Trust (ticker: IBIT). Other major providers, including Fidelity and Ark Invest, also submitted similar requests shortly after [1]. The SEC’s approval now applies to all existing spot Bitcoin and Ethereum ETFs across different providers, streamlining the process for institutional market participants [1].

Paul Atkins, in his first major decision as SEC Chair, framed the approval as part of a broader effort to develop a "fit-for-purpose regulatory framework for crypto asset markets" [1]. His comments reflect a regulatory shift toward treating digital assets more like traditional securities, a change that could foster greater institutional adoption and market maturity [1].

In addition to the in-kind redemption approval, the SEC also increased position limits for options trading on BlackRock’s Bitcoin ETF [1]. Position limits are designed to prevent market manipulation by capping how many contracts a single trader can control. The higher limits suggest the agency is growing more confident in the market’s stability and liquidity [1].

The approval is expected to enhance the efficiency of arbitrage strategies and improve overall market liquidity by allowing institutional investors to trade the underlying assets directly [1]. This development could further attract traditional investment managers seeking regulated exposure to digital assets, potentially accelerating the growth of the $50 billion crypto ETF market [1].

The move also aligns with a broader trend of increased institutional interest in cryptocurrency, as more sophisticated investors adopt strategies that rely on direct asset trading rather than cash-based transactions [1]. By removing these barriers, the SEC is facilitating smoother market operations and signaling a more accommodating regulatory stance toward digital assets [1].

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[1] https://coinmarketcap.com/community/articles/688a381c992943384be559de/