The United States Securities and Exchange Commission (SEC) has approved a new way for crypto exchange-traded products (ETPs) to operate. Announced today, this change allows investors to exchange ETP shares directly for real crypto assets like Bitcoin and Ethereum, instead of using cash.
SEC Approves In-Kind Crypto ETP Creations
The new process lets authorized participants (APs) swap crypto assets for ETP shares without cash transactions. This makes operations smoother and more cost-effective, aligning crypto ETPs with traditional products like gold ETPs. Companies like BlackRock and VanEck have made recent filings, showing progress in this area.
The SEC, under its Acting Chairman Mark Uyeda’s leadership, is pushing for clearer regulations. Analysts expect that more institutions will adopt these products, but retail investors may still face limitations due to broker restrictions.
On July 1, 2025, the SEC clarified its requirements, emphasizing the importance of transparency in how assets are held and priced. While there are still risks of market swings and platform outages that could disrupt trading, robust notification systems for suspended orders are necessary.
This move comes after the agency revised its stance from December 2023, which previously only allowed cash creations. Seeing success in places like Hong Kong has encouraged the U.S. to update its rules. These changes could offer tax benefits and enhance market liquidity, improving ETP efficiency.
Broker-Dealer Guidance
Additionally, the SEC has confirmed that broker-dealers can handle in-kind ETP transactions without breaking custody rules. Bitcoin and Ethereum holdings are now categorized as “readily marketable,” simplifying capital calculations. However, only registered crypto securities are protected by SIPC, putting some non-securities at risk.
The agency is also looking at proposals for ETPs linked to assets like Solana and XRP, with decisions expected by fall 2025. A new listing process could shorten approval times from 240 days to 75 days.
Despite these advancements, retail investors still cannot directly redeem crypto assets due to broker restrictions. The SEC has postponed decisions on Bitwise’s Bitcoin and Ethereum ETPs until September 8, 2025. Nasdaq is reviewing a rule change for BlackRock’s Bitcoin ETF, and they are seeking public comments in February 2025.
Commissioner Hester Peirce supports the in-kind model, suggesting it may gain wider acceptance. As the SEC fine-tunes its regulations, the future for pending ETPs looks promising.
