US SEC green lights in-kind creations and redemptions for Bitcoin and Ethereum ETPs

• US SEC approves on Tuesday the in-kind creations and redemptions for crypto asset ETPs.
• The move aligns crypto ETPs with traditional commodity-based ETPs, such as Gold and Oil, thereby enhancing cost-efficiency and operational efficiency.
• SEC Chair Paul S. Atkins called this a milestone in developing a fit-for-purpose regulatory framework for crypto assets.

The US Securities and Exchange Commission (SEC) announced on Tuesday that it has approved orders to permit in-kind creations and redemptions by authorized participants for crypto asset exchange-traded product (ETP) shares. The move marks a regulatory shift from the previous cash-only mechanism used for spot Bitcoin (BTC) and Ethereum (ETH) ETPs and now aligns crypto products with traditional commodity-based ETPs like Gold and Oil.

Regulatory clarity for crypto markets 

The US SEC announced in its press release on Tuesday that it has voted to approve orders to permit in-kind creations and redemptions by authorized participants for crypto ETP shares.

This order is a departure from the previous cash-only mechanism used for spot BTC and ETH ETPs, which were limited to creations and redemptions on an in-cash basis. This new development allows investors to receive the underlying asset, which is considered more efficient, as it enables the fund’s authorized participants to avoid selling the assets on the market, potentially reducing transaction costs. Moreover, it aligns crypto ETPs with traditional commodity-based ETPs, such as Gold and Oil.

SEC Chair Paul S. Atkins said, “I am pleased the Commission approved these orders permitting in-kind creations and redemptions for a host of crypto asset ETPs. Investors will benefit from these approvals, as they will make these products less costly and more efficient.”

Apart from this development, the Commission also voted to approve other orders that advance a merit-neutral approach to crypto-based products, including exchange applications seeking to list and trade an ETP that would hold mixed spot Bitcoin and spot Ether, options on certain spot Bitcoin ETPs, Flexible Exchange (FLEX) options on shares of certain BTC-based ETPs, and an increase of position limits up to the generic limits for options (up to 250,000 contracts) for listed options on certain BTC ETPs.