Bitcoin News Today: SEC Proposes In-Kind Redemptions for Bitcoin, Ethereum ETFs to Cut Market Impact and Improve Efficiency

The U.S. Securities and Exchange Commission (SEC) is advancing regulatory changes that could permit in-kind redemptions for Bitcoin and Ethereum exchange-traded funds (ETFs, enabling investors to exchange shares directly for the underlying cryptocurrencies. The proposed rule, submitted by the Nasdaq Stock Market on July 11, 2025, seeks to amend the Hashdex Nasdaq Crypto Index US ETF’s structure to allow Authorized Participants to transact using Bitcoin and ether in addition to cash [1]. This shift aims to reduce market impact and improve operational efficiency by minimizing reliance on large-scale cash transactions, which can exacerbate price volatility. Under the new mechanism, in-kind creations and redemptions would involve the direct transfer of crypto assets to and from the Trust’s custodians, such as Coinbase Custody Trust and BitGo Trust, with settlement processes requiring strict timeframes to mitigate price discrepancies [1].

The approval of in-kind redemptions marks a departure from the current cash-only model for crypto ETFs, which has limited investor flexibility. By enabling direct token exchanges, the process is expected to lower transaction costs and enhance liquidity. SEC Chair Paul Atkins emphasized the move as a milestone for a “rational and dynamic crypto regulatory framework,” aligning with broader goals to foster market maturity [1]. Proponents argue that in-kind mechanisms address liquidity constraints by reducing the need for intermediaries to execute large market orders, thereby stabilizing price movements. The Nasdaq filing cited Section 6(b)(5) of the Securities Exchange Act of 1934 as the legal basis for the proposal, underscoring its alignment with equitable trading principles and a “free and open market system” [1].

However, the SEC’s decision remains pending following a 45-day public comment period, with potential extensions to 90 days. Critics, including market analysts, have criticized the 19-month delay since the launch of spot Bitcoin ETFs in January 2024, calling the regulatory inertia “ridiculous” and a barrier to institutional adoption [2]. The absence of public comments on the proposal suggests limited stakeholder debate thus far, though the SEC’s final evaluation will hinge on assessing competitive impacts and operational risks. If approved, the amendment could set a precedent for broader adoption of in-kind mechanisms across crypto ETFs, potentially increasing institutional participation.

COINOTAG analysts note that the approval signals growing regulatory confidence in crypto ETFs, with SEC Chair Atkins highlighting the move as a step toward a “deeper and more dynamic market” [1]. Industry experts anticipate that the change will reduce costs and improve transparency, benefiting both investors and fund issuers. The framework’s potential expansion to other digital assets remains contingent on market demand and compliance with existing securities laws.

The regulatory shift reflects evolving approaches to crypto assets, with the focus currently on Bitcoin and ether. The outcome of the proposal may also influence the broader ETF landscape, as it underscores the SEC’s role in balancing innovation with investor protection. By enabling in-kind redemptions, the agency aims to enhance market efficiency while addressing concerns over operational risks.

[1] Self-Regulatory Organizations; The Nasdaq Stock Market LLC (https://www.federalregister.gov/documents/2025/07/29/2025-14234/self-regulatory-organizations-the-nasdaq-stock-market-llc-notice-of-filing-of-proposed-rule-change)

[2] Spot BTC ETFs at $151B: Here is the Needed Catalyst to ... (https://coinedition.com/expert-slams-sec-delay-bitcoin-etf-in-kind-redemption/)