- US SEC has approved “in-kind” redemptions for Bitcoin and Ether ETFs, allowing direct BTC/ETH share creation.
- This move aligns US policy with Hong Kong, which has allowed in-kind redemptions for its crypto ETFs since their launch.
- SEC Commissioner Mark Uyeda had previously criticized the initial cash-only approach, calling it a “troubling precedent.”
In a significant move that brings US policy more in line with international standards, the Securities and Exchange Commission (SEC) announced on Wednesday that investors are now permitted to use “in-kind” redemptions for Bitcoin and Ether exchange-traded funds (ETFs).
This decision allows institutional traders to create and redeem ETF shares directly in the underlying crypto assets, a shift that is expected to significantly improve market efficiency.
The SEC’s decision lets institutional traders create and redeem ETF shares directly in BTC or ETH, a more efficient process that avoids the need for constant conversions to and from fiat currency.
However, for those watching the global development of crypto products, this is not a novel concept. In Hong Kong, this functionality has been available from the start.
In late 2023, during the early days of the regulatory process to bring crypto ETFs to market (which ultimately launched in April 2024), the city’s Securities and Futures Commission (SFC) mentioned in a circular that in-kind redemptions would be permitted.
Part of the reason for this was a technical one: in Hong Kong, ETF issuers were required to partner with licensed local crypto exchanges and use approved custody solutions.
This was not the case in Ontario, Canada, which had crypto ETFs first, nor was it initially in the US Additionally, Hong Kong did not experience the same prolonged and intense debate about the status of Ether as a potential security as was seen in the United States.
In contrast, US regulators wrestled for months with a host of concerns, including custody arrangements, anti-money laundering (AML) risks, and the potential for market manipulation.
While the SEC never issued an explicit ban on in-kind redemptions, ETF sponsors were required to remove this feature from their early filings.
The Commission initially favored a cash-only redemption model, viewing it as a more cautious first step, citing untested operational processes and uncertainty over how to securely settle large-scale crypto transfers.
Internal pushback and a ‘troubling precedent’
This cautious stance was not without its critics, even from within the SEC. SEC Commissioner Mark Uyeda publicly criticized the agency’s approach during the landmark approval of spot Bitcoin ETFs in January 2024.
He pointed out that commodity-based ETFs, such as those backed by physical gold, routinely use in-kind redemptions and questioned why crypto was being treated so differently.
Uyeda argued that the SEC had failed to adequately explain why it considered cash-only redemptions to be “non-novel,” despite the clear deviation from standard practice for similar exchange-traded products.
He warned that this lack of clear reasoning set a “troubling precedent” for future digital asset regulation. The latest decision to allow in-kind redemptions appears to be a tacit acknowledgment of these and other industry arguments.
The episode ultimately highlights how Hong Kong’s regulator managed to move with greater clarity and cohesion from the very beginning of its crypto ETF journey.
By enabling in-kind redemptions early on and pairing them with strict licensing and custody requirements, the SFC avoided the internal contradictions and policy drift that characterized the initial US rollout.
Broader markets and industry moves
This significant regulatory development comes amidst a mixed backdrop for global markets and continued deal-making in the crypto industry.
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BTC: Bitcoin is trading above $117,500 after a modest rebound, but its momentum remains weak.
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The market is contending with persistent ETF outflows, profit-taking from whales near the $118,000 level, and macroeconomic headwinds, including a firm US dollar and hawkish Fed expectations, which continue to limit its upside.
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ETH: Ethereum is trading above $3,700. “Ethereum has proven in parallel with BTC since its inception to be the second most battle-tested network, and very likely institutions now see Ether the token as a formidable asymmetric bet alongside bitcoin,” said March Zheng, General Partner of Bizantine Capital, in a note to CoinDesk.
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Gold: Gold rebounded to $3,334 on Tuesday, snapping a four-day losing streak ahead of a key Fed meeting, as traders priced in steady rates despite weak US job data.
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Nikkei 255: Asia-Pacific markets opened mixed as US Commerce Secretary Howard Lutnick confirmed that President Trump’s Friday tariff deadline will proceed as planned, with Japan’s Nikkei 225 flat at the open.
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S&P 500: US stocks closed lower on Tuesday, with the S&P 500 ending a six-day record streak as investors weighed corporate earnings, economic data, and the upcoming Fed rate decision.
In other industry news, cryptocurrency exchange Kraken is reportedly set to raise $500 million in a new funding round at a lofty $15 billion valuation, according to a report from The Information on Tuesday, which cited people familiar with the matter.
A spokesperson for Kraken declined to comment on the report. This news underscores the increased investor interest in cryptocurrency-focused companies, as the digital asset class benefits from growing regulatory clarity and rising institutional adoption.
This trend has also prompted other crypto firms, including custody startup BitGo and asset manager Grayscale, to pursue US listings.
Kraken has been actively investing capital to expand into various asset classes and grow its user base, and in March, the company announced it would acquire the futures trading platform NinjaTrader in a $1.5 billion deal.