The U.S. Securities and Exchange Commission (SEC) has granted approval for in-kind creations and redemptions within its spot cryptocurrency exchange-traded fund (ETF) framework. This pivotal regulatory decision enables institutional investors acting as authorized participants (APs) to directly exchange ETF shares for the underlying cryptocurrency assets held by the fund.
The new structure significantly enhances operational efficiency by eliminating certain intermediary costs. Crucially, it improves tax efficiency for participants by minimizing the creation of taxable events during the share creation/redemption process, ultimately lowering overall fund expenses.
In a related development, the SEC approved a substantial increase in the options position limit for BlackRock’s iShares Bitcoin Trust (IBIT). The approved amendment allows for up to 250,000 options contracts, a tenfold increase from the previous limit of 25,000 contracts.
While institutional access expands via in-kind mechanisms and options trading, retail investors currently lack the ability to redeem ETF shares for physical cryptocurrencies. Market data indicates shifting dynamics; Ethereum-based ETFs experienced an 80% drop in recent inflows, yet their overall ETF market share grew from 13% to 20%. Conversely, Bitcoin ETFs saw their dominant market share decrease from 90% to 82% during the same period. Future ETF products may potentially extend direct redemption capabilities to retail investors.