Cboe Urges SEC for In-Kind Bitcoin, Ethereum ETFs

The Chicago Board Options Exchange (Cboe) has urged the U.S. Securities and Exchange Commission (SEC) to allow in-kind creation and redemption for Bitcoin and Ethereum exchange-traded funds (ETFs). This move aims to enhance the efficiency and accuracy of these funds, which have gained significant traction among institutional investors.

Cboe's proposal seeks to enable authorized participants (APs) to trade shares of Bitcoin and Ethereum ETFs directly for the underlying cryptocurrencies, rather than using cash. This in-kind model would reduce intermediaries and streamline transactions, better reflecting the decentralized nature of these digital assets.

The SEC has already approved spot Bitcoin ETFs, including BlackRock's iShares Bitcoin Trust (IBIT), which currently operates on a cash redemption model. However, market advocates argue that the in-kind mechanism should have been implemented from the start to more accurately represent Bitcoin's decentralized nature. The in-kind process has fewer intermediaries and steps, leading to smoother transactions.

Cboe's proposal reflects the increasing demands of the Bitcoin and Ethereum ETF sectors for more flexible arrangements. As these funds mature, investors seek even more streamlined and scalable solutions. Given the regulatory overhangs, especially regarding brokers handling Bitcoin for these ETFs, digital assets are better suited to in-kind transfers.

Cboe's filing is expected to influence other issuers of cryptocurrency ETFs to adopt in-kind redemption for their products. While BlackRock hasn't filed for an Ethereum ETF, its leadership in the fast-evolving crypto ETF market is reinforced by this innovation. The firm continues to dominate in Bitcoin and other crypto-backed ETFs.