SEC Approves In-Kind Crypto ETF Redemptions in Major Shift for Bitcoin and Ether Funds

Highlights:

• The SEC approves in-kind crypto ETF redemptions, giving issuers the option to handle Bitcoin and Ether directly.
• The change reduces the tax impact for investors and brings crypto ETFs in line with traditional structures.
• Bitcoin and Ether ETFs have seen rising demand as the SEC decision attracts more institutional interest.

The Securities and Exchange Commission has approved the use of in-kind redemptions on crypto exchange-traded products (ETPs). The decision enables the issuers to access Bitcoin and Ether without first converting the assets to cash.

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Looks like SEC just approved in-kind creation / redemption for all spot bitcoin and ether ETFs. pic.twitter.com/P8SEJv2Tk8

— Eric Balchunas (@EricBalchunas) July 29, 2025

All spot Bitcoin and Ether ETFs operated under a cash-only model before the change. Fund issuers had to sell the underlying crypto to meet investor redemptions. The process tended to add expenses and create undesirable tax liabilities for investors. With in-kind transfers, the SEC has made crypto ETFs more similar to conventional stock and commodity funds. Shares are now redeemable by authorized participants in actual crypto assets and not in fiat currency. The new model will enhance efficiency and reduce transaction costs.

SEC Chairman Paul Atkins supported the policy change. He emphasized that the new structure would reduce costs and benefit both issuers and investors. “These approvals will make the products less costly and more efficient,” he stated following the vote.

I'm pleased to share the SEC approved in-kind creations and redemptions for crypto ETPs. The approvals continue to build a rational regulatory framework for crypto, leading to a deeper and more dynamic market, which will benefit all American investors. https://t.co/UbQ9pXlBpD pic.twitter.com/DX8ub16Ey3

— Paul Atkins (@SECPaulSAtkins) July 29, 2025

The rule applies to all previously approved spot Bitcoin and Ether ETPs, giving issuers more flexibility in handling investor activity. Meanwhile, the SEC is also considering an innovation exception to encourage asset tokenization. 

SEC Approves In-Kind Crypto ETF Redemptions in Structural Shift

The updated rules introduce an operational shift for the growing crypto ETF market. The in-kind approach does not require cash to sell crypto on redemptions. This strategy allows investors to avoid short-term capital gains and allows them to manage taxation more effectively. Equity and commodity ETF redemptions are standard in-kind in the traditional markets. These trades increase liquidity and take pressure off issuers. Now, the same benefits are available in the crypto sector.

Besides approving the redemption model, the SEC approved other market developments. The agency cleared the listing of a mixed spot Bitcoin and Ether ETP. It also allowed the launch of options and FLEX options linked to several Bitcoin ETPs.

Furthermore, the SEC increased position limits on Bitcoin ETP options to 250,000 contracts. The adjustment is meant to match the crypto ETFs with the traditional ETF limitations. The Commission also published public comment orders on two large-cap crypto ETP proposals. These measures have symbolized a wider approach to how the SEC handles cryptographic investment products. The Commission seems to incline towards leaner and more uniform policies to cover all forms of ETF.

ETP Market Poised for Stronger Institutional Interest

The new redemption model may encourage more institutional participation. Many firms had avoided crypto ETFs because of operational constraints tied to cash-only settlements. Demand for Bitcoin ETFs continues to grow. Over the past 12 days up to July 22, US-based Bitcoin ETFs recorded $6.6 billion in net inflows.

Ether ETFs are expanding rapidly as well. BlackRock’s iShares Ethereum ETF surpassed $10 billion in assets within just 251 days. This growth ranks it among the fastest-growing ETFs in the US. By removing earlier barriers, the SEC’s changes may strengthen confidence in crypto investment vehicles. The market now offers a structure familiar to traditional asset managers.

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