The U.S. Securities and Exchange Commission (SEC) is signaling progress toward approving in-kind redemption models for spot Bitcoin and Ethereum exchange-traded funds (ETFs). Multiple asset managers including Invesco Galaxy, Ark 21Shares, VanEck, WisdomTree, and Fidelity have submitted amended proposals to address regulatory concerns regarding this redemption mechanism.
Historically, the SEC has expressed caution toward in-kind redemptions—which allow direct exchanges of ETF shares for underlying cryptocurrency assets—due to security and operational complexities inherent to digital asset custody and transactions. Recent filings demonstrate concrete efforts to resolve these regulatory apprehensions through revised structural frameworks.
In-kind redemption mechanisms offer potential tax benefits and enhanced liquidity by allowing investors to exchange ETF shares directly for Bitcoin or Ethereum, circumventing taxable cash settlements. This contrasts with cash redemption models currently dominating the approved spot crypto ETF market.
The SEC has postponed final rulings on several key proposals as it examines challenges in adapting traditional ETF infrastructure to cryptocurrency ecosystems. Regulatory hesitations highlight persistent friction between conventional financial protocols and blockchain-based settlement processes.
Financial analysts observe that the active amendment process indicates substantive progress toward potential approvals. Successful adoption of in-kind models could broaden market accessibility, improve capital efficiency, and accelerate institutional adoption of cryptocurrency investment vehicles.