SEC considers in-kind redemptions for Bitcoin and Ether ETFs

The U.S. Securities and Exchange Commission (SEC) is evaluating a proposal to allow Bitcoin (CRYPTO:BTC) and Ether (CRYPTO:ETH) exchange-traded funds (ETFs) to create and redeem shares using spot cryptocurrency instead of cash.

The SEC is seeking public comments on the proposal, according to a February 10 filing.

On February 5, the Cboe BZX Exchange filed an amended application to permit in-kind creations and redemptions for the ARK 21Shares Bitcoin ETF (ARKB) and the 21Shares Core Ethereum ETF (CETH).

This approach would differ from the SEC’s existing mandate, where crypto ETFs are currently required to perform share creations and redemptions entirely in cash.

In-kind transactions, where an ETF swaps shares for the corresponding basket of digital assets rather than cash, are widely preferred for their tax advantages, as they reduce capital gains liabilities for investors.

The SEC has not yet approved in-kind redemptions for spot crypto ETFs.

Industry leaders believe that this approval will improve ETF performance and encourage further adoption by major institutions.

Allowing in-kind creations and redemptions for spot crypto ETFs would improve the funds’ after-tax performance and further promote institutional adoption of BTC and ETH.

BlackRock's iShares Bitcoin Trust (IBIT), the largest ETF by net assets, has assets under management (AUM) of approximately $57 billion, while ARKB and CETH hold AUMs of around $5 billion and $20 million, respectively.

Bloomberg Intelligence anticipates relatively high odds of approval across the board for new crypto ETF filings.

At the time of reporting, the Bitcoin (BTC) price was $95,634.50, and the Ethereum (ETH) price was $2,595.33.