 SEC seeks comment on in-kind redemptions for Bitcoin, Ether ETFs 
2025-02-12
Category: None

The US Securities and Exchange Commission is seeking comments on a proposal to let Bitcoin BTCUSD and Ether ETHUSD exchange-traded funds (ETFs) create and redeem shares using spot cryptocurrency instead of cash, according to a Feb. 10 filing. 
On Feb. 5, Cboe BZX Exchange, a securities exchange, filed an amended application to permit so-called “in-kind” creations and redemptions for two ETFs, ARK 21Shares Bitcoin ETF (ARKB) and the 21Shares Core Ethereum ETF (CETH).
Allowing in-kind creations and redemptions for spot crypto ETFs would improve the funds’ after-tax performance and further promote institutional adoption of BTC and ETH. 
Authorized traders create new ETF shares by exchanging either cash or a basket of the ETF’s underlying assets for a “block” of typically several thousand shares. Redemptions reverse this process. 
In-kind creations and redemptions, where an ETF swaps shares for a basket of underlying assets, are more tax efficient and, therefore, preferred by most ETF issuers and investors. The SEC has not yet permitted in-kind redemptions for spot cryptocurrency ETFs. 
Flurry of ETF proposals
In January, Nasdaq, a US securities exchange, sought the SEC’s permission to facilitate in-kind creations and redemptions for BlackRock’s iShares Bitcoin Trust (IBIT), the largest ETF by net assets. 
According to BlackRock's website, the ETF has assets under management (AUM) of approximately $57 billion. 
For comparison, ARKB and CETH hold AUMs of around $5 billion and $20 million, respectively, according to 21Shares’ website. 
US regulators are anticipated to soften their stance on crypto oversight after Donald Trump — who has promised to turn the US into the “world’s crypto capital” — prevailed in the US elections and then started his presidential term on Jan. 20.
In 2024, asset managers submitted a flurry of regulatory filings to list ETFs holding altcoins, including SOL (SOL), XRP (XRP) and Litecoin (LTC), among others.
Issuers are also awaiting approval for several planned crypto index ETFs designed to hold diverse baskets of digital tokens.
Bloomberg Intelligence anticipates “relatively high odds of approval across the board” for new crypto ETF filings.