SEC to Innovate Crypto ETFs with Cash Rewards, as per Hester Peirce's Statements
In the ever-evolving world of finance, the potential approval of in-kind redemptions for crypto Exchange-Traded Funds (ETFs) in the United States is generating significant buzz. This shift, if implemented, could revolutionise the cryptocurrency investment landscape.
Currently, most crypto ETFs in the U.S. operate under a cash-based creation and redemption system. However, Commissioner Hester Peirce of the Securities and Exchange Commission (SEC) has signalled that in-kind redemptions may be approved for Bitcoin spot ETFs in 2025, reflecting an evolving regulatory stance towards greater accommodation of cryptocurrency innovation.
In-kind redemption would allow ETF investors to redeem their shares by receiving the actual underlying cryptocurrencies (such as Bitcoin or Ethereum) instead of cash. This approach is common in traditional ETFs and is seen as a potential advance for crypto ETFs because it enhances operational efficiency, reduces costs, and provides more flexibility for asset managers and investors.
If approved, in-kind redemption could significantly change the cryptocurrency investment landscape. It would increase efficiency and reduce friction in ETF trading and settlement. Institutional investors would be able to directly access and manage underlying crypto assets, facilitating more sophisticated investment strategies. Enhanced liquidity and potential cost reductions related to buying and selling cryptocurrencies through ETFs could also be realised.
The broader appeal of crypto ETFs to a wider range of investors would be bolstered by offering asset redemption flexibility. This could potentially accelerate mainstream adoption and regulatory confidence in crypto financial products. Proposals from exchanges like Cboe BZX suggest that the market and regulatory readiness to adopt in-kind creation and redemption processes for Bitcoin and Ethereum ETFs is growing.
Notable industry players like BlackRock have shown interest in adapting Bitcoin ETFs to a more efficient and less costly model for investors. Commissioner Peirce, also known as "Crypto Mom", has been a vocal advocate for this change, signalling that the SEC is considering in-kind redemptions for Bitcoin ETFs and other digital assets.
In a broader context, the move towards in-kind redemptions could solidify the integration of cryptocurrencies into traditional markets. It could set a precedent for other crypto ETFs, including Ethereum, XRP, Solana, or Dogecoin, expanding the range of financial products available. The introduction of an in-kind redemption system for Bitcoin ETFs has the potential to significantly increase liquidity in the Bitcoin and other digital asset markets.
The demand for ETFs of cryptocurrencies to evolve towards schemes that favour liquidity and reduce the inherent management costs of these funds is growing from the industry. This shift reflects the real needs of market actors to optimise operations, reduce risks, and attract a broader audience.
The SEC, under the recent administration of Donald Trump and Paul Atkins, has adopted a more flexible approach and shown openness to innovations that contribute to market stability and transparency. This forward-thinking stance could pave the way for the approval of in-kind redemptions for crypto ETFs, offering retail investors greater transparency and direct connection to the underlying asset, and reinforcing the notion of personal control and financial sovereignty.
Sources: [1] Bloomberg, 2023 [2] CoinDesk, 2024 [3] Yahoo Finance, 2025 [4] Cboe BZX, 2025
Today's evolving financial landscape sees the potential for technology playing a significant role in cryptocurrency investment, particularly with the emergence of in-kind redemptions for Bitcoin spot ETFs. This shift, if approved, could lead to enhanced operational efficiency, cost reductions, and flexibility for asset managers and investors in the sphere of cryptocurrency markets and finance. Moreover, the introduction of in-kind redemption systems could potentially stimulate institutional investing in cryptocurrencies, resulting in a broader range of investment strategies and increased liquidity in the market.
