SEC Approves In-Kind Creation and Redemption for Bitcoin and Ethereum ETFs

The U.S. Securities and Exchange Commission (SEC) has approved in-kind creation and redemption processes for all spot bitcoin (BTC) and ethereum (ETH) exchange-traded funds (ETFs).

Authorized participants can create and redeem ETF shares directly in BTC or ETH.
This method enhances efficiency and security by allowing real-time adjustments to ETF share supply based on investor demand.
The decision marks a shift in the SEC's regulatory approach under new chair Paul Atkins.
Atkins aims to develop a regulatory framework tailored for crypto asset markets.
BlackRock initiated this change with a request for its iShares Bitcoin Trust (IBIT) in January.
Previous spot bitcoin ETFs were limited to cash transactions, complicating operations.
The SEC also increased position limits for options trading on IBIT, providing more flexibility for institutional investors.
These changes may boost institutional participation by facilitating arbitrage and hedging strategies.

The SEC's actions reflect a growing acceptance of treating crypto assets similarly to traditional financial markets.