SEC Approves In-Kind Redemptions for Bitcoin and Ethereum ETFs

• The SEC approved in-kind redemptions for Bitcoin and Ethereum ETFs, allowing direct crypto transactions instead of cash-only settlements.

• Bitcoin ETF options position limits increased from 25,000 to 250,000 contracts, and new options trading was approved.

• These changes take effect immediately and bring crypto ETFs in line with gold and other commodity funds.

The United States Securities and Exchange Commission has approved in-kind creation and redemption mechanisms for all spot Bitcoin and Ethereum exchange-traded funds. The action marks the first major crypto-friendly policy shift under new SEC Chair Paul Atkins. This regulatory change eliminates the previous cash-only transaction requirement that had limited operational flexibility for institutional investors.

In-kind creation and redemption provide flexibility and cost savings to ETP issuers, authorized participants, and investors, resulting in a more efficient market. Authorized participants can now create and redeem ETP shares using actual Bitcoin or Ethereum instead of cash settlements. The new framework brings crypto ETFs in line with commodity-based ETPs such as gold funds.

SEC Expands Position Limits and Options Trading

The Commission simultaneously approved significant changes to Bitcoin ETF derivatives markets. Position limits for Bitcoin ETF options increased from 25,000 to 250,000 contracts, representing a tenfold expansion. The SEC also has greenlit options for trading on certain spot Bitcoin ETFs and FLEX options on Bitcoin-based ETPs.

Bloomberg analyst Eric Balchunas highlighted market expectations, quoting an issuer who described the changes as potentially creating “an explosion of option-based Bitcoin ETFs.” These derivative expansions will significantly boost institutional trading activity and market liquidity.

New Regulatory Framework Under Atkins Leadership

SEC Chairman Paul Atkins emphasized the regulatory shift in recent statements. The new approach reflects the Commission’s commitment to developing appropriate oversight for digital asset markets. Director Jamie Selway of the Division of Trading and Markets described the approval as providing operational flexibility and cost savings for the crypto ETP marketplace.

The regulatory updates became effective immediately following the Commission’s vote. Bloomberg analyst James Seyffart noted that upcoming altcoin ETF approvals will likely include in-kind provisions from launch. This represents a substantial departure from the cautious approach maintained under previous SEC leadership.

Traders view these changes as critical infrastructure improvements for institutional crypto adoption. The alignment with traditional commodity ETPs removes operational barriers that previously distinguished crypto funds from established investment products. Nate Geraci, President of The ETF Store, characterized the moves as representing a forward-looking regulatory stance.

The approval coincides with broader crypto market developments, including acknowledged filings for staking functionalities in major Ethereum ETFs. These combined regulatory shifts signal increased institutional acceptance and operational standardization across crypto investment products.