SEC Commissioner Hester Peirce Signals Potential Approval for In-Kind Redemptions in Crypto ETFs

SEC Commissioner Hester Peirce has indicated that in-kind redemptions for cryptocurrency exchange-traded funds (ETFs) could soon be approved, marking a significant shift in the regulatory landscape for digital assets. During a panel hosted by the Bitcoin Policy Institute, Peirce addressed the potential transition from cash-based to in-kind creation and redemption mechanisms for spot Bitcoin ETFs. She noted that several filings for this change are currently under review, suggesting that the SEC is actively considering the proposals.

In-kind redemptions allow ETF shares to be exchanged directly for the underlying asset, in this case, Bitcoin, rather than settling in cash. This method is favored by many institutional players, including BlackRock and Fidelity, who argue that it reduces friction, lowers tax implications, and improves ETF efficiency, particularly for high-volume crypto products. In January, Nasdaq submitted a Form 19b-4 on behalf of BlackRock requesting approval for the switch to in-kind structures, with several other firms following suit.

Earlier this year, Nasdaq, representing BlackRock, filed a 19b-4 application to the SEC, seeking approval for in-kind creation and redemption of Bitcoin ETFs. Following this, multiple financial institutions have submitted similar proposals, reflecting growing market demand. Peirce confirmed these applications are under active review, emphasizing the SEC’s cautious yet open stance toward evolving ETF structures. While the outcome remains uncertain, this development underscores the increasing institutional interest in refining crypto investment vehicles under regulatory oversight.

The SEC initially approved cash-only models when greenlighting spot Bitcoin ETFs in early 2024. However, the industry has continued to advocate for a more traditional in-kind model, which is commonly used in equity ETFs. Peirce’s comments suggest that the agency is seriously evaluating these proposals, although no formal decision timeline has been announced.

If approved, the shift to in-kind redemptions could represent a major evolution in how crypto ETFs operate. This change could potentially increase efficiency and adoption by institutional investors, further integrating cryptocurrencies into the mainstream financial system. The industry's push for this transition underscores the growing demand for more efficient and tax-friendly mechanisms in the crypto ETF space.