SEC Commissioner Hester Peirce Signals Potential Shift to In-Kind Redemptions for Bitcoin ETFs

Hester Peirce, a commissioner at the Securities and Exchange Commission (SEC), recently discussed the potential shift from cash-based to in-kind creation and redemption mechanisms for spot Bitcoin ETFs during a panel hosted by the Bitcoin Policy Institute. Peirce noted that several filings for this transition are currently under review, indicating that in-kind redemptions for Bitcoin ETFs are "on the horizon." She emphasized that while she cannot prejudge the outcome, there is significant interest in this change.

In-kind redemptions allow ETF shares to be exchanged directly for the underlying asset, in this case, Bitcoin, rather than settling in cash. This mechanism is favored by many institutional players, including BlackRock and Fidelity, as 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.

While the SEC initially approved cash-only models when greenlighting spot Bitcoin ETFs in early 2024, the industry has continued to advocate for a more traditional in-kind model, commonly used in equity ETFs. Peirce’s comments suggest that the agency is actively reviewing these proposals, though no formal decision timeline has been announced. If approved, this shift could mark a significant evolution in how crypto ETFs operate, potentially increasing efficiency and adoption by institutional investors.