SEC Allows In-Kind Creations and Redemptions for Spot Crypto ETPs

On July 29, 2025, the U.S. Securities and Exchange Commission approved exchange rule changes allowing authorized participants in a group of spot bitcoin and ether exchange-traded products to create and redeem shares in kind. The change removed the cash-only constraint attached to the first U.S. spot bitcoin ETP approvals on January 10, 2024, and the spot ether ETP approvals on May 23, 2024.

That was a consequential market-structure decision, but its reach was narrower than a simple claim that an ETP shareholder could exchange a brokerage position for cryptocurrency. The approved process operated at the institutional creation-unit layer between each trust and its authorized participants. Ordinary shareholders still bought and sold ETP shares on securities exchanges.

What the SEC approved

SEC Release No. 34-103571 approved nine proposed exchange rule changes filed by Nasdaq, Cboe BZX and NYSE Arca. The covered products included bitcoin and ether trusts sponsored by BlackRock, 21Shares, Fidelity, VanEck, Invesco, Franklin and Bitwise, plus the WisdomTree Bitcoin Fund and Franklin's crypto index product. The order approved the proposals on an accelerated basis after finding them consistent with the Exchange Act requirements applicable to national securities exchanges.

Under the structure described by the Commission, an authorized participant could deliver spot bitcoin or spot ether, as applicable, to a trust in exchange for trust shares. For an in-kind redemption, the authorized participant could deliver trust shares and receive the applicable crypto asset. Cash creations and redemptions remained available; the order added an alternative rather than abolishing cash processing.

The distinction mattered because a cash-only workflow requires cash to be converted into or out of the underlying asset around creation and redemption activity. Those trades can add transaction costs and expose execution to slippage. In-kind transfers can reduce that conversion step and align the crypto products more closely with commodity ETPs that already used in-kind processing. The SEC said the method could enhance tax efficiency and minimize transaction costs, but the order did not quantify either benefit.

Why the institutional plumbing mattered

Creation and redemption are the mechanism through which specialized market firms expand or contract the supply of ETP shares. That process helps authorized participants arbitrage differences between an ETP's exchange price and the value of its underlying holdings. Giving those firms an in-kind route potentially made that mechanism more direct for products holding bitcoin and ether.

The decision therefore mattered less as a new retail access channel than as normalization of back-office plumbing. U.S. investors already had exchange-traded exposure to spot bitcoin and ether. On July 29, 2025, the Commission changed how designated institutional counterparties could move assets into and out of covered trusts. Commissioner Mark Uyeda characterized the earlier cash-only design as a source of avoidable costs and market asymmetry; that was an attributed regulatory assessment, not a measured finding that every fund's expense ratio or tracking difference would fall.

The SEC also announced separate July 29 approvals involving a mixed spot bitcoin-and-ether ETP, options on certain spot bitcoin ETPs, FLEX options and higher position limits for some listed options. Those actions reinforced the day's broader shift toward integrating crypto-linked products with established securities-market structures, but they were legally distinct from Release No. 34-103571.

Scope, uncertainty and the event-day record

The approval did not approve bitcoin or ether as investments, guarantee lower shareholder costs, remove custody or market risks, or permit every crypto ETP to use every possible in-kind arrangement. The order rested on the exchanges' representations and preserved the products' continuing listing obligations. Actual operational timing also depended on fund documents, service providers and authorized-participant readiness.

This reconstruction makes no price or flow claim for July 29, 2025. Crypto trades continuously, and a defensible market reaction would require a named venue or fund, a defined UTC or exchange-session window and a method for separating the SEC action from other news. The contemporaneous primary record establishes the regulatory change and its intended mechanism; it does not establish the size of any resulting cost saving or causal market move.