SEC's In-Kind Approval Bridges Crypto and Traditional Markets, Attracting Institutions

The U.S. Securities and Exchange Commission (SEC) has taken a pivotal step toward normalizing crypto asset markets by approving in-kind creation and redemption mechanisms for exchange-traded products (ETPs), a move expected to enhance efficiency and attract institutional capital. This regulatory shift aligns crypto ETPs with traditional commodity-based ETFs, allowing authorized participants to exchange underlying assets like Bitcoin or Ethereum directly for ETP shares, bypassing cash transactions. The change is projected to reduce transaction costs, improve liquidity, and align crypto ETPs with established market practices, as noted by SEC Chairman Paul S. Atkins and Director Jamie Selway.

The approval follows a broader trend of SEC actions to streamline crypto product frameworks, including expanded position limits for Bitcoin options and the potential for mixed-asset ETPs. These measures aim to foster deeper market participation and align with the growing institutional interest in crypto markets. For instance, BlackRock’s iShares Bitcoin Trust (IBIT), the largest spot Bitcoin ETF, has seen significant inflows, and the introduction of in-kind redemptions could further bolster its appeal by reducing tax burdens and improving price accuracy.

Parallel to regulatory advancements, competition among decentralized exchanges (DEXs) has intensified, with platforms like Hyperliquid and Aster vying for dominance in perpetual futures trading. Bitwise Asset Management recently filed for a spot ETF tracking Hyperliquid’s native token (HYPE), while Aster has surged in open interest and trading volume, surpassing Hyperliquid in 24-hour metrics. Aster’s open interest exploded 33,500% in a week, reaching $1.25 billion, while its 24-hour trading volume hit $24.7 billion, outpacing Hyperliquid’s $10 billion. However, Hyperliquid maintains a lead in longer-term liquidity, with $300 billion in 30-day perpetual volume. These developments highlight a maturing DeFi ecosystem, where institutional-grade infrastructure and regulatory clarity could drive broader adoption.

The SEC’s recent approval of in-kind redemptions also addresses prior inefficiencies in crypto ETF structures. Previously, spot Bitcoin and Ethereum ETFs were limited to cash-based creations and redemptions, creating operational hurdles compared to traditional commodity ETFs. The shift to in-kind mechanisms eliminates the need for open-market asset purchases, reducing slippage and transaction costs. Analysts, including Bloomberg’s James Seyffart, anticipate that this change will accelerate institutional adoption, with major ETF providers like BlackRock and Grayscale poised to benefit.

Market dynamics are further supported by growing ETP inflows and a regulatory environment increasingly accommodating crypto innovation. While Bitcoin’s Q4 price trajectory remains speculative, the confluence of improved ETF structures, heightened DeFi activity, and institutional interest creates a favorable backdrop. The SEC’s actions, combined with the maturation of decentralized trading platforms, underscore a shift toward mainstream acceptance of crypto assets. As the market adapts, investors may see enhanced liquidity and reduced costs, potentially catalyzing a rally in Bitcoin and other digital assets.