SEC Commissioner Hester Peirce, who also chairs the cryptoasset working group, anticipates the approval of in-kind redemptions for crypto ETFs approved in the United States.
Peirce has raised eyebrows in the crypto world by anticipating that in-kind redemptions for cryptocurrency ETFs like those for Bitcoin could be approved very soon.
This change, if implemented, promises to substantially alter the way investors—from large institutions to retail users—interact with Bitcoin ETF and other cryptocurrencies, increasing market efficiency and promoting liquidity.
Peirce's announcement not only opens the door to a more refined and straightforward system, but could also mark a turning point in the evolution of the global crypto financial ecosystem.
BUY BITCOIN WITHOUT HASSLEIn-kind reimbursements and their difference with the cash model
Understanding this proposal requires first understanding how cryptocurrency ETFs currently work. Traditionally, when an investor decides to redeem their ETF shares, they receive a cash refund. This means the fund manager must sell the underlying asset, in this case Bitcoin or Ethereum, on the open market to obtain liquidity and pay the investor in fiat currency.
This is a process that, although functional, generates certain operating costs and sales commissions that can increase selling pressure on the price of the underlying asset, potentially affecting its stability.
However, in-kind redemptions radically change this dynamic. Instead of liquidating the fund's underlying asset, the ETF could directly deliver to the investor a proportional amount of the asset, in this case the Bitcoin or Ethereum that backs their holdings. In this way, the redemption is made "in-kind," meaning the asset is delivered, not fiat currency.
This mechanism is common in other traditional financial markets for funds that hold tangible assets or securities, but it has not yet been implemented for cryptocurrency ETFs, which were approved in the United States in January 2024.
“Crypto Mom” anticipates new options for crypto ETFs
Hester Peirce, popularly known as "Crypto Mom» for his favorable stance towards innovation in the crypto sector, he recently noted on a Bitcoin Policy Institute panel that The SEC is considering this type of in-kind reimbursement for Bitcoin ETFs and other digital assets..
Although he did not make a definitive commitment, his public acknowledgment that the approval of in-kind reimbursements “is on the horizon"It sends a clear signal to large asset managers and the market in general about the regulatory direction.
TRADE CRYPTOCURRENCIES HERERegulation in line with innovation
The SEC has approved Bitcoin spot ETFs, but under a cash-back scheme. This model, while secure, limits efficiency and can create friction that large financial players like BlackRock and other firms have pointed out as an area to improve the product and its competitiveness.
BlackRock, for example, submitted a request to the federal agency to allow in-kind redemptions in its iShares Bitcoin Trust (IBIT) fund, showing its interest in adapting cryptocurrency ETFs to a more efficient and less expensive model for investors. Currently, IBIT It is the largest Bitcoin investment fund, surpassing even several ETFs in the traditional market in terms of growth and value under management.
Under the recent administrations of Donald Trump and Paul Atkins, the SEC has adopted a more flexible approach and has shown openness to innovations that contribute to market stability and transparency. This coincides with a growing demand from the industry for cryptocurrency ETFs to evolve toward schemes that promote liquidity and reduce the costs inherent in managing these funds.
The impact of in-kind redemptions for large and small investors
For large asset managers like BlackRock, adopting in-kind redemptions would mean a significant reduction in the operating costs associated with managing cryptocurrencies. Avoiding the forced sale of large volumes of Bitcoin to generate cash reduces the impact on the market, lowers transaction costs, and streamlines the redemption process.
This, in turn, could translate into a more attractive product for large institutional investors seeking exposure to Bitcoin without incurring liquidity stress or price fluctuations.
Retail investors, for their part, could benefit from greater transparency and a direct connection to the underlying asset. By receiving Bitcoin instead of cash, they could choose to keep their crypto assets in personal wallets or use them as they see fit, reinforcing the notion of personal control and financial sovereignty.
Furthermore, this option could open doors to new user profiles who value actual ownership of the digital asset over simply a derivative financial product.
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The future of crypto ETFs: efficiency, lower costs, and greater institutional participation
The introduction of an in-kind refund system has the potential to significantly increase liquidity in the Bitcoin and other digital asset markets.
By reducing the need to liquidate assets to generate cash, the mechanism mitigates selling pressure during times of massive redemption, contributing to greater price stability.
Furthermore, greater operational efficiency in the management of these ETFs could translate into lower fees for users and an indirect benefit to the fund's net profitability. Access to a more agile mechanism for the delivery and redemption of assets could encourage the participation of more institutional investors, who traditionally prioritize efficiency and risk reduction in their strategies.
In a broader picture, the move toward in-kind redemptions could set a precedent for other cryptocurrency ETFs, including funds like those of Ethereum, which are already listed on the US market, or XRP, Solana o Dogecoin, seeking regulatory approval, expanding the range of available financial products and consolidating the integration of cryptocurrencies into traditional markets.
Therefore, the potential approval of in-kind redemptions for cryptocurrency ETFs represents a crucial step forward in the maturation of the crypto financial ecosystem. It would reflect greater regulatory confidence in the safe and transparent management of these assets and respond to the real needs of market players to optimize operations, reduce risks, and attract a broader audience.
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