The Securities and Exchange Commission (SEC) has voted to permit in-kind creations and redemptions for crypto asset exchange-traded product (ETP or ETF) shares.
The Commission also voted to approve other orders that advance a merit-neutral approach to crypto-based products, including exchange applications seeking to list and trade an ETP that could hold mixed spot Bitcoin and spot Ether, options on certain spot bitcoin ETPs, Flexible Exchange (FLEX) options on shares of certain BTC-based ETPs, and an increase of position limits up to the generic limits for options (up to 250,000 contracts) for listed options on certain BTC ETPs.
Jamie Selway, Director of the Division of Trading and Markets, said the change is an important development for the growing crypto ETP market with investors now gaining flexibility and cost savings.
Previously, investors in spot bitcoin and ether ETFs, were limited to creations and redemptions on an in-cash basis.
SEC Chairman Paul Atkins said a key priority of his leadership is a fit for purpose regulatory framework for crypto assets.
“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. Today’s approvals continue to build a rational regulatory framework for crypto, leading to a deeper and more dynamic market, which will benefit all American investors. This decision aligns with the standard practices for similar ETPs.”
Commissioner Mark T. Uyeda noted that the first approval forced investors to face significant costs if they wanted to transition to crypto on the open market.
“[This] order aligns with the SEC’s mission to protect investors and maintain fair, orderly, and efficient markets. Crypto asset ETPs will now be able to use the same processes for creations and redemptions as other comparable products, giving investors access to products in which they have expressed interest for years. The Commission’s order eliminates the market asymmetries and inefficiencies created by cash-only redemption. In-kind redemptions will enable crypto-asset ETPs to access the tools for managing exposure more cheaply, more transparently, and with better alignment to how asset managers and investors use ETPs in other markets.”
The change in administrations from Biden to Trump has had a profound impact on digital assets in general. The once crypto-hostile SEC, which sought to undermine digital asset innovation, is now recognizing both the demand for and the potential of digital assets, accepting innovation while enhancing investor protection. The prior leadership of the SEC will probably be remembered as missing a historic transition to digital assets.