The U.S. Securities and Exchange Commission (SEC) has approved the use of in-kind creation and redemption processes for all spot bitcoin (BTC) and ethereum (ETH) exchange-traded funds (ETFs), marking a significant shift in the regulator’s approach to digital assets under its new leadership. The decision allows authorized participants—large institutional investors who facilitate ETF liquidity—to create and redeem ETF shares directly in BTC or ETH, rather than having to use cash. The mechanism is widely seen as more efficient and secure as it lets authorized participants to closely track investor demand and adjust ETF share supply in real time, without the need to convert assets back and forth into fiat currency. This marks the SEC’s first major crypto-friendly policy move since Paul Atkins was named chair of the agency earlier this year. Atkins, a former SEC commissioner known for his market-friendly views, has long advocated for a more open regulatory approach toward digital assets. "“It’s a new day at the SEC," said Atkins in a press release. "A key priority of my chairmanship is developing a fit-for-purpose regulatory framework for crypto asset markets,” he continued. "I am pleased the Commission approved these orders permitting in-kind creations and redemptions for a host of crypto asset ETPs. Investors will benefit from these approvals, as they will make these products less costly and more efficient." The shift comes after BlackRock filed a request in January to allow in-kind transactions for its iShares Bitcoin Trust (IBIT), and other issuers, including Fidelity and Ark Invest, quickly followed. Until now, all approved spot bitcoin ETFs—first greenlit by the SEC in January 2024 —were only allowed to operate with cash creations and redemptions. That requirement added operational complexity and was widely viewed as a barrier to efficiency for institutional market makers. The SEC also approved an increase in position limits for options trading on IBIT, a move that will allow traders to hold larger options positions tied to the fund. Position limits are regulatory caps that restrict the number of options contracts a trader or institution can control in a single security to prevent market manipulation or excessive risk. By raising these limits, the SEC is signaling greater comfort with the liquidity and maturity of the Bitcoin ETF market, and giving institutional investors more flexibility to hedge or express views on the fund’s performance. The changes could significantly increase institutional participation in both ETF groups by reducing friction for arbitrage and hedging strategies. The SEC’s decision underscores a growing willingness under Atkins’ leadership to treat crypto assets within the same regulatory frameworks applied to traditional markets.
