Key Takeaways
- Major ETF issuers seek SEC approval for in-kind redemptions in bitcoin ETFs.
- The change would improve operational efficiency, but benefit institutions over retail investors.
- SEC's cash-only policy was driven by money laundering and regulatory concerns.
Recent filings from leading ETF providers signal a shift toward in-kind creations and redemptions for bitcoin ETFs, potentially allowing issuers to transact directly in BTC rather than cash.
The U.S. Securities and Exchange Commission (SEC) initially mandated cash redemptions for both bitcoin and ethereum ETFs, but amendments are now under review.
ETF providers file for in-kind process
Five major ETF issuers—Ark 21Shares, Fidelity, Invesco Galaxy, VanEck, and WisdomTree—have submitted amendments to the SEC, aiming to permit investors to exchange bitcoin directly for ETF shares.
If granted, this would align U.S. spot bitcoin ETFs with traditional exchange-traded product (ETP) structures and practices in regions like Hong Kong, where in-kind redemptions are already allowed.
For up-to-date data on U.S. spot bitcoin ETF holdings and flows, see the ETF flows tracker.
Bloomberg ETF analyst James Seyffart described the filings as a positive sign:
“More positive signs regarding Bitcoin & Ethereum ETFs obtaining the ability to do in-kind creation and redemption. Five different funds on CBOE filed amendments with the SEC. This indicates to me that there is positive movement and likely fine tuning happening with the SEC.”
SEC concerns and rationale for cash redemptions
The SEC initially required cash-based redemptions, citing money laundering risks and the need to keep unregistered broker-dealers from handling bitcoin directly. Fox Business News’ Charles Gasparino explained:
“SEC worried about ETFs being used as a vehicle for money laundering.”
Cash redemptions also place the responsibility for bitcoin transactions on ETF issuers rather than intermediaries, in line with regulatory priorities.
retail investors remain excluded
Despite the potential changes, retail access to in-kind redemptions will remain limited, as only authorized participants—typically large Wall Street firms—will be able to redeem ETF shares for bitcoin. Seyffart cautioned:
“…the vast majority of people won’t even see a difference because the products on the market now already trade extremely efficiently. This will treat crypto ETPs the same as other ETPs are treated.”
While the move is seen as an upgrade for institutional investors, broader retail participation in in-kind redemptions is not expected in the near term.
