SEC Greenlights Direct Crypto Redemption for ETFs

SEC Simplifies Bitcoin and Ethereum ETF Redemptions

In a move hailed as a significant step forward for crypto-friendly regulation, the Securities and Exchange Commission (SEC) has approved a new rule allowing for in-kind creation and redemption of Bitcoin and Ethereum exchange-traded funds (ETFs).

What does this mean?

Previously, authorized participants—typically large financial institutions—had to convert ETF shares into cash and then use that cash to purchase BTC or ETH (or vice-versa). The new rule now lets them directly exchange ETF shares for the underlying BTC or ETH, bypassing the cash conversion step.

Benefits of the Change:

• Increased Efficiency: Direct redemption eliminates the need for cash conversions, speeding up the process.
• Reduced Costs: Bypassing the cash step also reduces transaction costs, particularly for institutional investors engaging in arbitrage.
• Market Flexibility: The new rule provides a more efficient mechanism for arbitrage and real-time market exposure.

SEC Chairman Paul S. Atkins emphasized the importance of this change, stating it aligns with his commitment to a “fit-for-purpose regulatory framework for crypto asset markets.” He anticipates investors will benefit from reduced costs and increased efficiency.

Other Updates:

The SEC also approved enhancements related to options trading, including increased position limits on certain Bitcoin ETFs, proposals for mixed BTC-ETH funds, and greater flexibility in trading FLEX options.

Jamie Selway, Director of the Division of Trading and Markets, highlighted that in-kind creation and redemption offer “flexibility and cost savings to ETP issuers, authorized participants, and investors.”

Key Takeaways

• The SEC now allows direct redemption of Bitcoin and Ethereum ETFs for the underlying cryptocurrencies.
• This eliminates cash conversions, streamlining the process and reducing costs.
• The SEC also approved enhancements related to crypto ETF options trading.