The US Securities and Exchange Commission (SEC) has approved the use of the creation of in-kind and redemption processes for all Spot Bitcoin (BTC) and Ethereum (ETH) Exchange-Traded Funds (ETFS), which marks a significant shift in the controller’s approach to digital assets under its new management.
The decision provides authorized participants – large institutional investors who facilitate ETF Liquidity – to create and redeem ETF shares directly in BTC or ETH, rather than having to use cash. The mechanism is largely seen as more efficient and safe as it allows authorized participants to track the investor’s demand and adjust the ETF share supply in real time without the need to convert assets back and forth to FIAT currency.
This marks SEC’s first major cryptic political traits since Paul Atkins was appointed chairman of the agency earlier this year. Atkins, a former SEC Commissioner, known for his market-friendly views, has long gone for a more open legislative approach to digital assets.
“It’s a new day in SEC,” Atkins said in a press release. “A key priority for my presidency is to develop a Fit-for-purpose legislative framework for Crypto Asset Markets,” he continued. “I am glad that the Commission approved these orders that allow in-stroke creations and redemptions for a host of Crypto Asset ETPS. Investors will benefit from these approvals as they will make these products cheaper and more efficient.”
The change comes after Blackrock filed a request in January to allow in-kind transactions for its Ishares Bitcoin Trust (Ibit), and other issuers, including Fidelity and Ark Invest, followed quickly.
Until now, all approved Spot Bitcoin ETFs – first green -lit by SEC in January 2024 – were only allowed to operate with cash creations and redemptions. This requirement added operational complexity and was widely considered a barrier to effectiveness for institutional market producers.
SEC also approved an increase in position boundaries for options on Ibit, a step that allows traders to have larger options bound to the fund.
Position boundaries are regulatory caps that limit the number of options that a trader or institution can control in a single security to prevent market manipulation or excessive risk. By raising these limits, Sec signalizes greater comfort with the liquidity and maturity of the Bitcoin ETF market and gives institutional investors more flexibility to uncover or express views on the fund’s performance.
The changes could significantly increase institutional participation in both ETF groups by reducing friction for arbitrage and cover strategies.
SEC’s decision emphasizes a growing will under Atkins’ leadership to process crypto assets within the same legislative framework used in traditional markets.
