The U.S. Securities and Exchange Commission (SEC) has not granted approval for proposed physical redemption mechanisms for spot Bitcoin and Ethereum Exchange-Traded Funds (ETFs). The existing cash redemption process will remain in effect while the regulator continues its assessment of the submission.
The proposal, backed by Cboe BZX Exchange, Inc. and Invesco Galaxy, aimed to permit the direct exchange of ETF shares for the underlying cryptocurrencies. Proponents argued this physical redemption model could enhance market liquidity and provide tax efficiencies, drawing parallels to established commodity ETFs.
Industry sources indicate the SEC’s ongoing review stems from persistent concerns focused on investor protection and operational complexities. Key worries involve the challenges of securely tracking and managing the underlying digital assets within the ETF structure.
Market participants maintain a watchful stance amid the regulatory uncertainty. While investment interest continues, signified by current Bitcoin valuations exceeding $117,000 and a market capitalization topping $2.3 trillion, the potential benefits of streamlined operations remain contingent on SEC approval.
The continuation of the mandatory cash redemption mechanism means investors currently lack the option for physical redemption. This maintains existing market stability processes but delays any potential operational improvements associated with the physical redemption model.