Breaking: SEC Greenlights In-Kind Redemptions for Crypto ETPs—Institutional Adoption Just Got Easier

The SEC just handed crypto a institutional-grade crowbar—and Wall Street’s vault doors are creaking open.

No more cash-only shackles

In-kind redemptions mean big players can now swap ETP shares directly for underlying crypto. No forced taxable events, no liquidity bottlenecks—just cleaner exposure. TradFi’s paper-pushers hate this one trick.

The fine print (because of course there is)

Approved issuers must still jump through anti-money laundering hoops and ‘robust custody’ theatrics. Because nothing says ‘innovation’ like repackaging 1970s compliance frameworks.

The bottom line

Another brick in crypto’s regulatory moat—while hedge funds quietly update their ‘blockchain risk’ PowerPoints for the third time this quarter.

What is in-kind creation and redemption, and why does it matter?

In-kind creation and redemption is a process where authorized participants, typically institutional firms and market makers, exchange ETF shares directly for the underlying asset rather than cash. 

For crypto ETFs, that means receiving Bitcoin or Ethereum instead of fiat when redeeming shares, and depositing those assets to create new ones.

This model is seen as more operationally efficient as it reduces reliance on liquidating assets into cash, minimizes taxable events, and cuts down transaction costs. It also makes it easier to add or remove ETF shares based on demand, helping the fund’s price stay closer to the actual value of the crypto it holds.

Experts believe this could accelerate inflows into crypto ETFs, attract new institutional players, improve secondary market efficiency, and also improve tax efficiency by reducing capital gains distributions passed on to ETF holders.

Commenting on the development, Jamie Selway, Director of the SEC’s Division of Trading and Markets, said the policy change “provides flexibility and cost savings” to ETF issuers, market participants, and ultimately the broader market.

Experts like Bloomberg ETF analyst James Seyffart have long advocated for this change, arguing that in-kind redemptions make the ETF process more streamlined by reducing the number of steps and intermediaries involved.

What happens next?

With in-kind creation and redemption now approved, ETF issuers are expected to implement the updated mechanisms in the coming weeks. Exchanges that received accelerated approvals are preparing to facilitate the new structure. 

Analysts expect this policy change to pave the way for similar frameworks in pending ETF proposals tied to altcoins.

“The coming approvals for alt coin ETFs likely going to allow in-kind from the get go. More movement in right direction IMO,” Seyffart wrote in a Tuesday X post.

How did we get here?

The move represents a sharp departure from the SEC’s previous stance under former Chair Gary Gensler, who insisted on cash-only redemptions when the first spot bitcoin ETFs were approved in January 2024. 

Things began to change earlier this year when Paul Atkins was appointed SEC Chair. A known market-friendly voice, Atkins quickly signaled support for a more “fit-for-purpose” regulatory approach to crypto.

“I am pleased the Commission approved these orders permitting in-kind creations and redemptions for a host of crypto asset ETPs. Investors will benefit from these approvals, as they will make these products less costly and more efficient,” Atkins said in a statement accompanying the latest announcement.

In coordination with SEC Commissioner Hester Peirce—referred to as “Crypto Mom” within the community for her pro-innovation stance—the Commission had begun reviewing proposals to enable in-kind mechanisms earlier this year.

Peirce also played a central role in shaping the new policy landscape. As head of the SEC’s newly established Crypto Task Force, she led efforts to repeal restrictive rules and push for practical reforms, including the expansion of in-kind redemption options.

I welcome in-kind creations and redemptions for crypto-asset ETPs, a feature that ETP sponsors and investors have wanted since the initial approvals of crypto-asset ETPs: https://t.co/eBbrbC8b0H