SEC’s Sweeping Crypto ETF Shift: In-Kind Redemptions, New IBIT Limits Usher In Next-Gen Market Access

In a landmark move set to reshape U.S. crypto markets, the Securities and Exchange Commission (SEC) voted Tuesday to approve in-kind creations and redemptions for all crypto exchange-traded funds (ETFs), bringing spot Bitcoin and Ethereum ETFs in line with standard commodity ETF practices. The decision marks a significant departure from the prior cash-only structure, which had been a source of operational friction and elevated costs for both ETF issuers and investors

Breaking Down the SEC’s Reforms

1. In-Kind Model for Crypto ETFs

What’s Changed? Previously, spot Bitcoin and Ethereum ETFs—such as BlackRock’s iShares Bitcoin Trust (IBIT) and spot Ether ETFs like ETHA—were required to handle all share creations and redemptions via cash, requiring authorized participants and market makers to always transact in dollars.

Now: Authorized participants can directly deliver or receive underlying Bitcoin or Ether when creating or redeeming ETF shares, paralleling how commodity ETFs like gold operate.

2. Why It Matters for Investors

Lower Costs, Improved Efficiency: The in-kind structure resolves a “long-standing structural barrier” that limited scalability and efficiency for investors, according to Federico Brokate of 21Shares. Market makers now enjoy greater flexibility and cost efficiency, particularly important during heightened volatility.

SEC Chairman Paul S. Atkins: “Investors will benefit from these approvals, as they will make these products less costly and more efficient,” stated Atkins, calling it “a new day at the SEC” that aligns digital assets with traditional market frameworks.

Better Price Discovery: In-kind functionality allows ETF share supply to dynamically track investor demand, promising tighter price spreads and stronger price discovery.

3. Additional SEC Approvals Supercharge IBIT Options Market

Massive Position Limit Increase: The SEC also raised the position limit on IBIT options from 25,000 contracts to 250,000—a tenfold boost—mirroring the regulator’s growing confidence in crypto ETF market depth and maturity.

FLEX Options Now Permitted: Approvals also include the use of FLEX (Flexible Exchange) options on IBIT, offering more customizable tools for sophisticated investors to manage risk, hedge, or tailor their exposure.

Record Option Volumes: IBIT’s option trading was already viral—topping $4b a day in notional volume, surpassing “big dogs” such as $TLT (Treasury) and $HYG (high-yield credit). The new position limit will enable even larger and more complex institutional trades, helping to stabilize liquidity during periods of volatility.

Market and Industry Impact

Institutional Access: The tenfold increase in options capacity comes at a time when sophisticated investors are clamoring for the flexibility to execute sizable trades in a regulated, liquid marketplace. This move will “significantly increase market liquidity for IBIT,” likely fueling further institutional adoption.

Accelerated ETF Adoption: With in-kind creations and redemptions now available for products like IBIT and ETHA, and with options markets further unlocked, many in the industry see this as a foundational step ushering in the next phase of crypto ETF adoption in the U.S.

Chairman Atkins summarized the mood: “Today’s approvals continue to build a rational regulatory framework for crypto, leading to a deeper and more dynamic market, which will benefit all American investors.

The SEC’s latest moves stand as a signal: digital assets are no longer in the financial market periphery—they are at the heart of a rapidly evolving ecosystem, regulated with parity to other commodity markets, and primed for institutional scale and innovation.

Dive deeper into crypto ETFs such as IBIT and ETHA with our ETF Compare Tool