The U.S. Securities and Exchange Commission (SEC) has approved the use of in-kind creation and redemption processes for spot Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs).
The decision by the Wall Street regulator allows large institutional investors who facilitate ETF liquidity to create and redeem ETF shares directly in Bitcoin and Ethereum rather than having to use cash.
The change marks a major shift in the regulator’s approach to digital assets and is viewed as more efficient and secure as it eliminates the need to convert assets into cash.
This is the latest crypto-friendly policy from the SEC under Chair Paul Atkins, who was appointed by U.S. President Donald Trump.
Trump returned to the White House this year vowing to make America the “crypto capital of the planet.”
In a news release announcing the in-kind redemptions, Atkins said: “It’s a new day at the SEC.”
The adoption of in-kind redemptions comes after asset manager BlackRock (BLK) filed a request to allow in-kind transactions for its iShares Bitcoin Trust (IBIT), the largest BTC ETF.
Until now, spot Bitcoin ETFs were only allowed to operate with cash creations and redemptions.
That requirement added operational complexity and was viewed as a barrier to efficiency, especially for large institutional investors and asset managers such as BlackRock.
The SEC also approved an increase in position limits for options trading on IBIT, a move that will allow professional traders to hold larger options positions tied to the fund.
Position limits are regulatory caps that restrict the number of options contracts a trader or institution can control in a single security to prevent market manipulation and lessen risk.
By raising the limits, the SEC is signaling greater comfort with the liquidity of the Bitcoin ETF market and giving institutional investors more flexibility to hedge against a fund’s performance.
Analysts say they expect these changes to significantly increase institutional participation in spot Bitcoin and Ethereum ETFs.
Under Atkins leadership, the SEC is moving to treat cryptocurrencies the same as more traditional markets such as those for stocks and bonds.
Bitcoin, the largest cryptocurrency by market capitalization, is currently trading at $117,700 U.S. and is up 26% on the year.
