The U.S. Securities and Exchange Commission today approved in‑kind creation and redemption for spot Bitcoin and Ethereum ETFs, marking a pivotal shift in crypto‑ETF infrastructure and regulatory tone. This move promises to significantly improve efficiency, reduce fees, and bring institutional adoption closer.
What Changed: In‑Kind vs. Cash Creations
Prior to this decision, all approved spot crypto ETFs—first greenlit in January 2024—operated under cash‑only mechanisms, requiring authorized participants (APs) to exchange fiat currency for ETF shares. The ETF issuers then bought the underlying assets separately—a process that added cost, complexity, and market volatility around net asset value settlements.
Now, APs can transact directly in bitcoin (BTC) or ether (ETH): deliver crypto to the issuer to receive ETF shares, or vice versa in redemption. This mirrors the process used in equity and commodity ETFs in traditional markets.
“In‑kind creation and redemption breaks the volatility cycle… fundamental improvement in how these products interact with the underlying crypto markets,” said Laurent Kssis, ETF expert at CEC Capital. He added that smoother flows reduce tracking error and tighten bid‑ask spreads typically seen around rebalancing windows.
Avoiding cash conversion reduces transaction fees and tax drag. Institutions can now manage large allocations more cost‑effectively—a key consideration for asset managers.
Since this approval, markets responded. Bitcoin holds around $118,500 and Ethereum trades above $3,845—clear signs of investor confidence amid regulatory clarity.
Under new SEC Chair Paul Atkins, this marks the first major crypto‑friendly policy since his appointment. Atkins emphasized that building “a fit‑for‑purpose regulatory framework for crypto asset markets” is a priority, and this approval aligns with that vision.
The SEC also raised position limits for options tied to BlackRock’s iShares Bitcoin Trust (IBIT), signaling broader willingness to adapt traditional ETF structures to web3 realities. Analysts note that this may encourage quicker approvals for pending ETFs tied to other tokens, including Solana, XRP and more.
Earlier in July, the SEC approved the conversion of Grayscale’s Digital Large Cap Fund (GDLC)—holding Bitcoin, Ethereum, Solana, XRP, and Cardano—into a spot ETF, showing growing confidence in multi‑asset digital trusts.
Meanwhile, Bitwise’s request to convert its BITW crypto index fund into an ETF was approved but immediately paused, suggesting regulators are still scrutinizing structural details across different issuers.
The SEC set July deadlines for spot Solana ETF refilings, aiming for possible approvals before October, signaling an accelerating timeline for altcoin inclusion.
For institutional investors, the in‑kind model significantly lowers barriers. Arbitrageurs and market makers can now operate more seamlessly, reducing volatility and improving liquidity.
For retail investors, while individual trades won’t use in‑kind mechanisms, the improved market structure may lead to tighter ETF pricing, better alignment with the crypto asset value, and potentially lower expense ratios.
For ETF issuers and token diversity, this comes amid growing momentum: filings for XRP, Litecoin, Solana, and Dogecoin ETFs are in the regulatory pipeline. Many of these filings now specifically include in‑kind creation language, a prerequisite for smoother approval under the new rulebook.
What It Means Going Forward
This policy shift signals increased regulatory confidence in crypto markets and a willingness to apply established ETF mechanics to digital assets. As a result:
- More spot crypto ETFs are expected to launch between September and October 2025, with analysts estimating up to a dozen approvals in this batch.
- Institutional participation is likely to accelerate, and tracking quality between ETF share price and underlying crypto could improve materially.
- Potential new entrants (e.g. staking‑enabled Solana ETFs or dual BTC/ETH funds) are expected to adopt the in‑kind model to gain SEC approval.
The SEC’s approval of in‑kind creations and redemptions for spot Bitcoin and Ethereum ETFs represents a turning point for crypto‑ETF infrastructure in the U.S. By bringing ETF mechanics in line with traditional markets, it reduces cost, enhances efficiency, and lowers volatility. As ERC‑20‑based and other altcoin ETFs prepare to launch, this framework creates durable regulatory infrastructure, potentially unlocking a new era of institutional adoption.
Whether you’re a seasoned crypto investor or a beginner browsing brokerage offerings, this change is likely to mean better alignment between ETF products and the underlying asset values, more varied token inclusion, and smoother market dynamics ahead.
