SEC decision expected by October as Fidelity pushes for in-kind BTC ETF redemptions

Fidelity has filed with the US Securities and Exchange Commission (SEC) to enable in-kind redemption for FBTC, its spot Bitcoin exchange-traded fund (ETF). Bloomberg Intelligence ETF research analyst James Seyffart confirmed the application on X.

Seyffart’s confirmation came as a rebuttal to the rumors circulating that FBTC now allows in-kind redemption. According to the commentator, the SEC has not allowed this yet, even though the regulator is expected to allow it eventually.

He said:

“Seeing a lot of accounts reporting that Fidelity is now able to do in-kind creation/redemption with their Bitcoin ETF. The SEC hasn’t yet allowed this… We do expect the SEC to approve this. But they haven’t yet.”

Beyond Fidelity, several other issuers have filed amendments to enable this type of redemption for their spot crypto ETF products. These include Ark 21Shares, Galaxy, WisdomTree, VanEck, and Invesco Galaxy.

Interestingly, it is not just Bitcoin ETFs trying to amend for in-kind redemptions. ETH spot ETFs are also filing for amendments, and the CBOE exchange recently filed for five ETFs listed on it.

If approved, in-kind redemption would allow authorized participants to create and redeem the crypto ETF shares directly in Bitcoin instead of first converting the digital assets to cash.

Commentators such as Seyffart say this will improve efficiency for spot and futures crypto ETFs and allow them to trade similarly to traditional ETFs. It is also expected to reduce costs by helping participants avoid taxes associated with transactions.

Although the change, if approved, will only affect institutional participants in those ETFs rather than the retail traders, the idea of in-kind redemption remains something the crypto community is watching out for. This is likely why rumors of approval for FBTC quickly circulated on X.

Fidelity’s in-kind redemption approval is likely to come in October

While rumors of approvals have been debunked, Seyffart noted that it is likely to come by October. According to him, this is because the first official deadline for the SEC to decide on the pending in-kind amendments is around October 10.

He said:

“Official deadline for any sort of In-kind create/redeem is in October (~Oct 10). Our base case is that they will all be approved by October.”

However, he acknowledged that the recent filing of amendments by the CBOE is a positive sign because it shows that work is going on at the SEC to finalize this decision, with firms also fine-tuning their applications.

Interestingly, this is not the only crypto ETF decision before the SEC. The regulator also has a decision to make on the hundreds of spot crypto  ETFs applications before it, and has yet to lift the stay orders on the two multi-assets funds approved for their conversion to ETFs.

Bitcoin ETFs see three days of outflows

Meanwhile, Bitcoin ETFs have now seen three days of consecutive outflows this week in what appears to be a continuation of sell-offs happening to the underlying asset since it reached the peak above $123,000.

According to data from Farside Investors, the products have seen a combined outflow of $285.2 million in those three days, with Ark 21Shares ARKB responsible for most of the outflows. Interestingly, BlackRock IBIT has seen no outflow during this time; instead, it had two days of zero flows and recorded $142.6 million in inflows on Wednesday.

Despite the broader outflows for spot Bitcoin ETFs, analysts believe institutional investors remain behind the rally. CryptoQuant verified analyst Burak Kesmeci noted that on-chain data and Google Trends show that accumulation has been from big players while retail has been selling since early 2023.

He said:

“Searches for ‘Bitcoin’ are not at their lowest in the past 5 years, but they are still quite muted. So there is no retail FOMO or hype at this point. The crowd has not awakened yet. This cycle looks nothing like the madness of 2021.”

With retail yet to get involved and BTC already scaling multiple peaks, Kesmeci believes that Bitcoin might still have more room to go up. However, he noted that retail entry could mark a market top.

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