While regulators have long clung to outdated paradigms that hamstrung crypto funds with cash-only settlements, the SEC’s recent authorization of in-kind creation and redemption for Bitcoin and Ether ETFs abruptly dismantles this archaic barrier, forcing a grudging acknowledgment that digital assets deserve parity with traditional commodities; this belated concession, arriving in July 2025, allows authorized participants to swap ETF shares directly for underlying digital assets. Gone are the days when crypto ETPs languished shackled by cash settlements, a practice that inflated costs, exacerbated tracking errors, and distorted prices through forced asset sales. By aligning Bitcoin and Ethereum ETFs listed on Nasdaq, NYSE, and CBOE with conventional commodity ETFs—like gold and oil funds—the SEC under Chair Paul Atkins grudgingly modernized its stance, conceding that the digital domain warrants operational efficiency comparable to its analog predecessors. This operational model extension to crypto products reduces costs and increases efficiency across the board, reflecting the kind of blockchain scalability innovations seen in projects like Kaspa.
This shift is hardly mere administrative housekeeping; it slices through the Gordian knot of inefficiency that has plagued crypto ETFs, slashing operational and transaction costs while enhancing liquidity and reducing tracking errors. Authorized participants can now handle large inflows and outflows without triggering market upheavals, a nuance previously ignored to the detriment of investors. The in-kind mechanism, by circumventing the need for disruptive asset liquidation, not only preserves market integrity but also signals a broader regulatory recalibration, one that acknowledges crypto markets’ maturation and demands a “fit-for-purpose framework.” The SEC’s willingness to raise Bitcoin options position limits and greenlight options trading on certain Bitcoin ETFs further underscores this pragmatic evolution.
Investors stand to gain tangible benefits from this newfound flexibility, as redeeming ETF shares for actual Bitcoin or Ether, rather than cash, empowers more nuanced portfolio management and bolsters confidence in crypto products. The long overdue pivot from cash-only settlements is not merely an incremental tweak but a decisive step toward institutionalizing digital assets within the mainstream financial ecosystem, challenging skeptics to reconsider their entrenched biases.
