The Securities and Exchange Commission (SEC) has approved the use of in-kind creation and redemption mechanisms for spot Bitcoin Exchange-Traded Funds (ETFs), bringing their operational structure more closely in line with traditional commodity-based exchange-traded products (ETPs). This significant regulatory shift aims to improve market efficiency, reduce operational costs, and enhance liquidity within the crypto ETP space.
Under the new framework, authorized participants can now create and redeem ETF baskets using actual Bitcoin or Ether directly, rather than relying solely on cash transactions. This move provides greater flexibility for market participants managing exposures.
The in-kind process is anticipated to reduce trading slippage, lower overall fees associated with ETF transactions, and bolster overall market liquidity. These factors are expected to make crypto ETFs more appealing to a broader range of investors seeking regulated crypto exposure.
Concurrently, the SEC approved options trading and Flexible Exchange (FLEX) options linked to Bitcoin ETFs. Additionally, the regulator increased position limits for options on Bitcoin ETFs, reflecting growing market depth and institutional participation.
SEC Chair Paul S. Atkins underscored that these collective approvals are designed to foster greater efficiency and create a more cost-effective market environment for cryptocurrency exchange-traded products.