Bitcoin News Today: SEC Delays In-Kind Redemption Approval for Bitcoin and Ethereum ETFs Amid Regulatory Scrutiny

The U.S. Securities and Exchange Commission (SEC) has delayed its decision on in-kind redemption mechanisms for Bitcoin and Ethereum exchange-traded funds (ETFs), signaling continued regulatory scrutiny despite the recent approval of spot crypto ETFs. The agency pushed back the deadline for reviewing amendments to the Bitwise Bitcoin ETF Trust and Bitwise Ethereum ETF to allow for further evaluation of in-kind creation and redemption features, a process critical for improving liquidity and efficiency in these funds [1]. The delay highlights the SEC’s cautious approach to integrating advanced trading mechanisms into the crypto ETF framework, which has only recently gained institutional traction following the January 2024 approval of 11 spot Bitcoin ETFs [2].

In-kind redemptions allow ETFs to exchange physical assets like Bitcoin or Ethereum for shares, reducing reliance on cash-based arbitrage and potentially lowering costs for investors. The SEC’s initial approval of spot crypto ETFs in early 2024 catalyzed over $151 billion in assets under management, but the absence of in-kind mechanisms has left gaps in market functionality [3]. Analysts argue that finalizing these features is essential to align crypto ETFs with traditional ETF structures, which have long utilized in-kind processes to maintain price efficiency.

The delay has drawn criticism from market participants, particularly given the SEC’s ongoing delays in ruling on broader crypto ETF applications. For example, the regulator postponed decisions on Truth Social’s Bitcoin ETF and Grayscale’s Solana ETF to September 18, underscoring the fragmented pace of regulatory action [4]. This inconsistency raises concerns about market certainty as institutional adoption accelerates. The SEC’s notice on the Bitwise ETF amendments, requiring public comments by August 15, emphasizes procedural transparency but prolongs market speculation [5].

From a practical standpoint, the absence of in-kind redemptions limits the scalability of crypto ETFs. Without this feature, redemptions must be settled in cash, which can strain liquidity during periods of high demand or volatility. In-kind redemptions would enable direct asset swaps, reducing reliance on intermediaries and potentially lowering transaction costs. For Bitcoin ETFs, this could mitigate the risk of price divergence between the ETF and the underlying asset, a concern raised by critics of the current cash-based model [6].

The Ethereum market faces similar challenges. While staking mechanisms for Ethereum ETFs have attracted regulatory attention—such as BlackRock’s proposal to generate yields via staking—the lack of in-kind redemption frameworks complicates the practical implementation of such strategies. Investors seeking exposure to Ethereum’s proof-of-stake model may find their ability to liquidate holdings constrained until both staking and in-kind mechanisms are fully operational [7].

Regulatory delays also amplify uncertainties for market infrastructure. Service providers enabling in-kind redemptions, such as custodians and settlement platforms, must prepare for potential regulatory adjustments. The SEC’s focus on trusted staking providers and operational risks, as highlighted in BlackRock’s staking application, suggests a broader emphasis on mitigating counterparty and systemic risks [8]. However, without clarity on in-kind redemption timelines, these entities face challenges in optimizing their offerings.

For investors, the delayed approval creates a mixed environment. While spot crypto ETFs have already attracted significant inflows, the lack of in-kind redemptions may deter more sophisticated institutional players accustomed to the efficiency of traditional markets. Conversely, the prolonged regulatory review offers time for market participants to adapt to potential changes in liquidity dynamics. Analysts caution that premature assumptions about ETF performance could be misleading until the SEC’s framework is finalized [9].

The SEC’s next steps will be pivotal. Finalizing in-kind redemption mechanisms for Bitcoin and Ethereum ETFs could accelerate institutional adoption by aligning these products with mainstream investment standards. Conversely, further delays risk undermining confidence in the crypto ETF market’s regulatory clarity, particularly as global markets continue to innovate in digital asset offerings.

Sources:

[1] Decrypt, https://decrypt.co/332167/sec-delays-decision-trump-bitcoin-grayscale-solana-etfs?amp=1&prefer_reader_view=1&prefer_safari=1

[2] TheBlock, https://www.theblock.co/tag/spot-bitcoin-etf

[3] Coin, https://coinedition.com/expert-slams-sec-delay-bitcoin-etf-in-kind-redemption/

[4] CoinDesk, https://www.coindesk.com/policy/2025/07/28/sec-delays-decision-on-trump-linked-truth-social-bitcoin-etf-until-september

[5] SEC.gov, https://www.sec.gov/taxonomy/term/193086

[6] CoinGape, https://coingape.com/us-sec-delays-launch-of-truth-socials-bitcoin-etf-and-grayscales-solana-etf/

[7] AInvest, https://www.ainvest.com/news/regulatory-shifts-crypto-etfs-sec-staking-approval-reshape-institutional-adoption-2507/

[8] AInvest, https://www.ainvest.com/news/bitcoin-news-today-sec-delays-trump-linked-grayscale-crypto-etfs-ethereum-rises-12-2507/

[9] CryptoNinjas, https://www.cryptoninjas.net/news/sec-pushes-crypto-etf-decisions-again-100b-market-waits-on-truth-social-and-grayscale-rulings/