The U.S. Securities and Exchange Commission (SEC) has requested public commentary on a proposal aimed at allowing Bitcoin and Ether exchange-traded funds (ETFs) to create and redeem shares using spot cryptocurrency instead of cash. This request, filed on February 10, follows the Cboe BZX Exchange’s amended application on February 5 to permit “in-kind” creations and redemptions for the ARK 21Shares Bitcoin ETF and the 21Shares Core Ethereum ETF.
The proposed in-kind redemptions are designed to improve the after-tax performance of ETFs and foster greater institutional adoption of Bitcoin and Ether. This method enables authorized traders to exchange either cash or a basket of the ETF’s underlying assets for a block of shares, with redemptions simplifying this process by reversing it. This tax-efficient mechanism is favored by most ETF issuers and investors. However, the SEC has not yet approved in-kind redemptions for spot cryptocurrency ETFs.
As the regulatory landscape evolves, January witnessed Nasdaq’s request for SEC approval to facilitate in-kind creations and redemptions for BlackRock’s iShares Bitcoin Trust, which boasts assets under management (AUM) of about $57 billion. By comparison, the ARK 21Shares Bitcoin ETF and 21Shares Core Ethereum ETF have AUMs of around $5 billion and $20 million, respectively.
Industry observers predict U.S. regulators may adopt a more lenient stance on crypto oversight, driven partly by Donald Trump’s administration, which has vowed to position the U.S. as a global crypto hub. In 2024, a surge of regulatory filings sought approval for ETFs holding a range of altcoins like Solana, XRP, and Litecoin, alongside proposals for diverse crypto index ETFs. Bloomberg Intelligence has expressed optimism regarding the approval prospects for these new ETF filings.
