Bitcoin ETF Institutional Investors Will Now Be Able to Redeem Shares for BTC

The Securities and Exchange Commission has approved in-kind creations and redemptions for crypto-based exchange-traded funds, according to a blog post published on Tuesday.

Previously, spot Bitcoin and Ethereum ETFs approved by the regulator were limited to creations and redemption on an in-cash basis, preventing investors from exchanging shares of an ETF for its underlying tokens or vice versa. 

Now, if a fund’s authorized participants, aka large institutional investors, want to swap their shares for the BTC backing them, they’ll be able to do so, rather than the issuer being forced to sell the Bitcoin via a market maker and deliver cash instead.

The Commission also said that it was in the process of advancing a “merit-neutral approach to crypto-based products,” covering those that hold Bitcoin and Ethereum. Earlier this month, the regulator indefinitely paused orders approving products that fit the description from Grayscale and Bitwise.

In a statement, SEC Chair Paul Atkins said the approvals will ultimately benefit markets and investors with products that cost less and are more efficient.

“It’s a new day at the SEC, and a key priority of my chairmanship is developing a fit-for-purpose regulatory framework for crypto asset markets,” he said. “Today’s approvals continue to build a rational regulatory framework for crypto, leading to a deeper and more dynamic market.”

The measure appeared to apply to all crypto-focused ETFs approved by the regulator, including Bitcoin and Ethereum. Previously, exchanges had filed proposed rule changes on behalf of asset managers seeking the approval of in-kind redemptions.

The SEC had extended its decision deadline earlier this month on a proposal to permit in-kind creations and redemptions for Bitwise’s spot Bitcoin and Ethereum ETFs, for example.

Amendments made to proposals earlier this month suggested that the regulator was poised to approve in-kind redemptions, according to Bloomberg ETF analyst James Seyffart.

Using in-kind redemptions, investors avoid certain tax liabilities that they could face otherwise, but the SEC has raised security concerns about the process in the past.Anticipation toward the potential approval of in-kind redemptions had been building for months, with a rule change filed on behalf of BlackRock for its Bitcoin fund in January.

Editor’s note: This story was updated after publication with additional details.