SEC Approves Exchange Proposals to Allow "In-Kind" Redemptions for Crypto ETPs

The SEC voted to allow exchanges that list and trade bitcoin- and ether-based Commodity Based Trust Shares, "to engage in creations and redemptions of their shares with authorized participants on an in-kind basis."

The SEC's approval marks a shift from previous spot bitcoin and ether ETPs, which were limited to "in-cash" transactions (see previous coverage). The SEC stated that, going forward, these products will be permitted to create and redeem shares "on an in-kind basis," aligning them with other commodity-based ETPs. 

The SEC approved additional orders supporting a "merit-neutral approach" to crypto-based products, including proposals for a mixed spot bitcoin and ether ETP, options and FLEX options on certain bitcoin ETPs and higher position limits—up to 250,000 contracts—for listed options on those products. The SEC also issued scheduling orders seeking public comment on exchange proposals to list and trade two large-cap crypto ETPs.

SEC Chair Paul Atkins called the Commission's decision a step toward "a fit-for-purpose regulatory framework for crypto asset markets." He emphasized investor benefit, highlighting that the decision would make crypto ETPs "less costly and more efficient" and align them with standard practices for other commodity-based products. He described the move as part of building a balanced regulatory framework for crypto that supports a "deeper and more dynamic market."

Commissioner Mark Uyeda criticized the SEC's earlier cash-only redemption model for crypto ETPs, calling it a source of "unnecessary costs and burdens." He argued that the structure introduced transaction costs and price slippage, making the products more expensive and less efficient. He said the SEC's 2024 Order failed to explain "why this novel structure" was justified. He supported the Commission's new approach, stating it removes "market asymmetries and inefficiencies" and brings crypto ETPs in line with comparable products.