The U.S. Securities and Exchange Commission (SEC) has authorized the creation and in-kind redemption of Bitcoin and Ethereum spot ETFs, marking an operational milestone that improves efficiency, reduces costs, and paves the way for crypto innovation.
The SEC's recent ruling, which officially approved the use of in-kind creation and redemption for Bitcoin and Ethereum spot exchange-traded funds (ETFs), allows authorized participants, known as APs, to directly exchange shares of these ETFs for the underlying cryptocurrencies, eliminating the need for cash settlements.
Until now, crypto ETFs operated under a cash redemption model, which involved selling assets on the market to meet investor demands. However, this process generated operational friction, additional costs, and the risk of price slippage. Now, with the new approval, Issuers will be able to directly transfer BTC or ETH to and from regulated custodians, replicating the model already used by commodity ETFs such as gold.
BUY BITCOIN ON BIT2METhe measure was supported by exchanges such as Nasdaq, NYSE Arca, and CBOE, and benefits issuers such as BlackRock, Fidelity, VanEck, and Franklin Templeton. According to SEC Chairman Paul Atkins, this decision seeks to build a rational regulatory framework for digital assets, making products "less costly and more efficient."
“It's a new day at the SEC, and a key priority of my chairmanship is developing an appropriate regulatory framework for the cryptoasset markets.”, said the SEC chairman. “Today's approvals continue to build a rational regulatory framework for cryptocurrencies, leading to a deeper and more dynamic market that will benefit all American investors.”
Operational efficiency for spot ETFs and institutional legitimacy for cryptocurrencies
La approval The SEC's in-kind creation and redemption represents a technical advancement that substantially improves the operational efficiency of crypto ETFs. By enabling the direct delivery of digital assets like Bitcoin and Ethereum, Unnecessary intermediaries are eliminated, transaction costs are reduced, and transparency in the valuation of funds is improved.In addition, tax risks arising from forced sales in the open market are mitigated, contributing to a more robust and predictable structure.
This change also facilitates arbitrage between the ETF price and the underlying asset value, helping to maintain parity and reduce spreads. For institutional traders, this feature represents a key tool for optimizing liquidity and hedging strategies, especially in volatile markets.
Although the direct impact on retail investors may seem limited, the ecosystem benefits from increased participation from market makers, regulated custodians, and managers with experience in traditional assets. This raises the profile of crypto ETFs as solid, reliable financial vehicles aligned with institutional standards.
Eric Balchunas, senior ETF analyst at Bloomberg, highlighted that this approval is “rather an improvement in the plumbing of the system” It doesn't directly affect retail, but it does optimize the internal functioning of the funds. In his words:
“It only applies to authorized participants (APs); it does not mean that retail investors can exchange IBIT for physical Bitcoin, although an ETF allowing this could be launched soon, such as $OUNZ.”
Balchunas also emphasized that this decision marks a shift in the SEC's stance, noting that Gary Gensler, the agency's previous chairman, did not want the in-kind model because he feared bitcoin and ether would come from dubious sources, even though all other ETFs already operate this way. "This shows that the SEC is ready to treat cryptocurrencies as a legitimate asset class. That's the biggest message.", Balchunas commented.
Overall, the approval not only improves the technical operation of these cryptocurrency exchange-traded funds, but also sends a clear signal to the market: digital assets are being incorporated into the traditional financial system under consistent and functional rules. For issuers, custodians, and institutional participants, this represents regulatory validation that can accelerate the adoption and expansion of regulated crypto products.
BUY CRYPTOCURRENCIES WITH BIT2MEFuture projection: altcoins, derivatives, and staking in the spotlight
The SEC's recent approval of the in-kind creation and redemption mechanism for Bitcoin and Ethereum spot ETFs represents a key milestone that opens the door to a new era for cryptocurrency investment funds. Under the new leadership of Paul Atkins, the SEC appears to be adopting a more favorable and adaptive stance toward the dynamics of digital assets, seeking to integrate these products within more modern and rational regulatory frameworks.
In addition to Balchunas, other market analysts such as James Seyffart of Bloomberg see this development as A prelude to future altcoin ETFs such as Solana, Cardano, or Avalanche, where in-kind creation and redemption could be incorporated from launch, which would set an innovative standard within the sector. In addition, the Securities and Exchange Commission has also approved a significant increase in the position limit on Bitcoin ETF options, increasing it from 25.000 to 250.000 contractsThis increase indicates growing confidence in the maturity and liquidity of the crypto derivatives market, while offering institutional investors greater flexibility for hedging and arbitrage strategies.
On the other hand, the diversification of the regulated market is also reflected in the authorization of mixed products that combine Bitcoin and Ethereum, as well as FLEX options, which expand the offering and improve versatility for market participants.
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Staking and new revenue opportunities are being considered for Ethereum ETFs.
In a parallel move, the SEC is evaluating the application submitted by BlackRock earlier this month to add staking functionality to its Ethereum ETF (ETHA).
If this request is approved, the fund could actively participate in validating transactions on the Ethereum network, generating staking rewards that would be considered income for the fund. This would be a significant step toward integrating blockchain mechanisms into traditional financial products.
A new era for crypto ETFs: SEC pushes for efficiency and diversification
The SEC's recent decision reflects a more mature and technical stance toward the crypto ecosystem. By aligning Bitcoin and Ethereum ETFs with traditional product standards, it narrows the gap between decentralized finance and regulated markets.
For experts, this move also responds to the growing institutional interest in crypto products that offer efficiency, liquidity, and additional returns. Furthermore, the possibility of incorporating staking in ETFs like BlackRock's would add a layer of utility that could attract pension funds, asset managers, and investment banks.
Overall, the approval of in-kind creation and redemption, along with the analysis of proposals such as staking, positions the United States as a leader in building a robust, transparent, and competitive digital financial ecosystem. For industry professionals, this regulated environment represents a strategic opportunity to innovate, diversify, and consolidate high-impact crypto products.
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