The SEC Is About To Approve A Key Advancement For Crypto ETFs

The SEC finally seems ready to take a decisive step. Several Bitcoin and Ethereum ETF issuers have just filed amendments to add in-kind redemptions. A key step for these products, which could thus gain in attractiveness and tax efficiency.

The SEC Opens Up to In-Kind Redemptions for Bitcoin and Ethereum ETFs

James Seyffart, an experienced ETF analyst at Bloomberg, identified a strong signal in the recent regulatory filings. 

Five major issuers – Invesco Galaxy, Ark 21Shares, VanEck, WisdomTree, and Fidelity – simultaneously amended their prospectuses for Bitcoin ETFs and Ethereum ETFs listed on the CBOE. This coordination is no accident.

“Positive signs are emerging regarding the possibility for Bitcoin and Ethereum ETFs to carry out in-kind creation and redemption operations “, the analyst notes in his observations. 

This synchronization likely reveals advanced discussions with the Securities and Exchange Commission, which until now has been strongly resistant on this matter.

In-kind redemptions represent a major strategic issue for institutional investors. This feature allows direct recovery of the underlying assets, bitcoin or ether, in exchange for the shares held, thus avoiding certain capital gains taxes. It is a lever for tax and operational optimization that would significantly strengthen the appeal of crypto ETFs.

Since the approval of spot Bitcoin ETFs in January 2024, requests in this regard have continued to flood in. But the SEC has so far blocked their implementation, citing concerns related to security and the complexity of the mechanism. 

The recent updates filed by the issuers now suggest that these technical obstacles are about to be lifted.

The SEC Between Regulatory Caution and Market Pressure

Despite encouraging signals, the path to approval for in-kind redemptions remains full of pitfalls. 

The SEC continues to delay: it recently postponed to August 26 its decision concerning BlackRock’s iShares Ethereum ETF (ETHA).

This restraint is explained by very real technical concerns. The direct transfer of cryptos raises many questions: secure management of private keys, exposure to cyberattacks, transaction traceability… so many risks that regulators want to control before giving their green light.

The paradox is striking: Donald Trump openly advocates cryptos since his return to power, yet his regulators still slow down. Solana ETFs remain pending, staking for Ethereum as well. A caution that contrasts with the pro-crypto speeches of the administration.

Meanwhile, the market sends another message. On July 21, Bitcoin ETFs registered $131 million in net outflows. Conversely, Ethereum ETFs attracted $297 million, mainly thanks to BlackRock and Fidelity.

The stake therefore goes far beyond the technical aspect. Approval of in-kind redemptions would represent a true regulatory turning point. It would allow the emergence of a new generation of crypto ETFs, designed from the start for institutional investors, combining tax efficiency, security, and innovation. The question remains open: is the SEC ready to take this step or will it once again choose to buy time?