SEC Enhances Crypto ETF Efficiency with In-Kind Redemptions
SEC Approves In-Kind Redemptions for Spot Bitcoin and Ethereum ETFs
The U.S. Securities and Exchange Commission (SEC) has approved in-kind creations and redemptions for spot crypto Exchange-Traded Products (ETPs), enhancing tax efficiency and reducing operational costs.
This decision allows authorized participants (APs), typically large institutions, to directly exchange shares of the ETPs for the underlying crypto assets instead of cash.
What the Change Means
The SEC's approval enables a more streamlined process for crypto ETFs. According to Bloomberg’s Senior ETF Analyst Eric Balchunas, while this unlocks operational advantages, it’s primarily a backend change that won’t directly affect retail users, at least not immediately.
Retail investors cannot redeem BlackRock’s IBIT for physical BTC currently. ETFs with that feature may be coming in the future, Balchunas added.
Key Benefits of In-Kind Redemptions:
- Tax Efficiency: Reduces potential capital gains taxes.
- Cost Reduction: Lowers transaction costs for authorized participants.
- Operational Advantages: Streamlines the creation and redemption process.
Impact on Bitcoin and Ethereum ETFs
The change applies to all current spot Bitcoin [BTC] and Ethereum [ETH] ETFs, as well as other approved crypto ETFs.
SEC Commissioner Hester Pierce welcomed the in-kind basis, stating that ETF issuers have sought it since the products were approved last year.
The agency also approved a significant increase in the options limit on BlackRock’s iShares Bitcoin Trust ETF, raising it tenfold from 25,000 to 250,000. Balchunas noted that this increase is substantial, as IBIT was already among the most active in ETF options.
“And now the limit has just been raised 10x. This will help bring in bigger institutions and be helpful during volatility. Pretty big.”
Ethereum ETF Market Share Growth
In recent weeks, spot BTC ETFs have seen an 80% drop in inflows. ETH ETFs' market share has increased to 13%, while BTC ETFs' share has dropped from 90% to 82% in the past two months. This surge is attributed to renewed market interest amid tokenization and stablecoin buzz.
However, Balchunas projects that ETH ETFs' market share growth may stall at 20%.
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