Cboe BZX Exchange has filed a proposed rule change with the U.S. Securities and Exchange Commission (SEC) on behalf of Inveso Galaxy to allow for in-kind creations and redemptions of shares for its spot Bitcoin ETF and Ethereum ETF.
In-kind redemptions and creations allow for the direct exchange of the underlying assets of the ETF (Bitcoin or Ethereum) for ETF shares, bypassing the need for cash.
This method eliminates the need for participants to sell the underlying crypto to create shares, reducing the bid/ask spread and avoiding additional broker commissions.
The proposal, published Thursday morning, pushes the boundaries of crypto ETFs in the U.S., opening new avenues for investors to tap into Bitcoin (BTC) and Ethereum (ETH) without holding the assets physically.
As the SEC reviews Cboe’s proposed rule change, a public comment period has been opened, allowing stakeholders to share their thoughts before a final decision is made.
Authorized participants—institutions involved in the creation and redemption process—will be eligible to use the in-kind transaction model, says the filing.
Individual investors will still be required to use the cash-based model when purchasing or redeeming ETF shares.
The Invesco Galaxy filing mirrors similar moves by major ETF providers, including BlackRock, which has recently sought approval for in-kind redemption mechanisms.
In a related tweet, Bloomberg ETF analyst James Seyffart pointed out in January that in-kind creations and redemptions should help “streamline” the ETF market.
The analyst explained that fewer steps and parties would be involved in the process, while sharing an image BlackRock reportedly used in a November 2023 SEC meeting to advocate for in-kind transactions for spot Bitcoin ETFs.
“In my opinion the ETFs should have been allowed to do this from the get-go but the Dem SEC commissioners were against it,” Seyffart said.
Bitcoin ETFs face challenges
Last January, the SEC approved the Invesco Galaxy Bitcoin ETF, making history as one of the first spot Bitcoin ETFs to be listed on a U.S. exchange.
Following the approval of its Bitcoin counterpart, the SEC granted approval for the Invesco Galaxy Ethereum ETF in May of last year.
Like the Bitcoin ETF, it holds Ethereum as the underlying asset and allows shares to be traded on a regulated exchange.
Even so, both Bitcoin and Ethereum ETFs have faced challenges in recent days.
On Tuesday, Bitcoin ETFs experienced significant outflows, with $371 million withdrawn, marking the seventh consecutive day of withdrawals, according to data from UK-based investment management firm Farside Investors.
Ethereum ETFs were similarly impacted, with outflows of $21.57 million, extending their streak to five days.
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