Main Points:
- Regulatory Approval Path: SEC is reviewing applications for in-kind redemption, with strong indications it will approve physical exchanges for spot crypto ETFs.
- In-Kind Mechanism Benefits: Direct exchange of ETF shares for underlying crypto (BTC, ETH) could tighten price tracking and boost market efficiency.
- Industry Collaborations: Nasdaq’s January Form 19b-4 filings (BlackRock, WisdomTree, VanEck) and April discussions between BlackRock and SEC mark significant momentum.
- Public Comment Phase: As of June 2, the SEC opened a 21-day comment period on WisdomTree’s rule change, underscoring caution and transparency.
- Market Impact: In-kind redemptions may reduce arbitrage costs; however, individual investors will remain excluded from direct creations/redemptions, reserved for authorized participants.
- Altcoin Spot ETFs: Invesco & Galaxy filed for a Solana (SOL) physical ETF on June 25, joining VanEck, Bitwise, and 21Shares, with approval odds rising to 95% for SOL and XRP ETFs.
- Next Steps & Timeline: Final rule adoption expected late 2025, potentially paving the way for Ether and other asset redemptions.
Introduction
The U.S. Securities and Exchange Commission (SEC) is edging closer to permitting “in-kind” or physical creations and redemptions for spot cryptocurrency exchange-traded funds (ETFs). On June 25, SEC Commissioner Hester Peirce—speaking at a panel hosted by the Bitcoin Policy Institute—confirmed that applications to allow ETF shares to be exchanged directly for Bitcoin or Ethereum tokens are under active review and have a high likelihood of approval. This development promises to narrow the price gap between ETF share values and their underlying digital assets, bringing U.S. spot crypto ETFs into closer alignment with their physical counterparts in Europe and Canada.
See the timeline below for key milestones in this regulatory journey:
Timeline of Key Regulatory Milestones for Physical Redemption of Crypto ETFs (January–June 2025)
(Chart displayed above)
1. Understanding In-Kind Redemption
What Is In-Kind Mechanism?
Traditional commodity ETFs often use in-kind processes: authorized participants deliver the underlying asset (e.g., gold bars) to the fund in exchange for ETF shares, or vice versa. For a Bitcoin spot ETF, in-kind redemption would mean delivering actual BTC to an ETF issuer in exchange for shares, instead of cash.
Advantages Over Cash-Only Models
- Tighter Tracking: By swapping the real asset, ETFs can minimize tracking error and narrow bid–ask spreads.
- Lower Arbitrage Costs: Reduces transaction fees and taxes associated with converting between cash and crypto.
- Market Efficiency: Encourages authorized participants to engage more actively, fostering deeper liquidity in both ETF shares and spot markets.
2. Regulatory Application Timeline
January 2025: Form 19b-4 Filings
In mid-January, Nasdaq filed amendment applications (Form 19b-4) on behalf of BlackRock, WisdomTree, and VanEck to enable physical creations and redemptions for their proposed Bitcoin spot ETFs. This procedural step was the first formal request to the SEC to rewrite Exchange Act rules for crypto ETFs.
April 2025: Industry–Regulator Dialogue
By April, BlackRock executives met with SEC officials to discuss the mechanics and supervision of an in-kind redemption model. These confidential talks aimed to address custody safeguards, anti–money laundering (AML) controls, and auditing procedures.
June 2, 2025: WisdomTree Comment Period
The SEC opened a 21-day public comment period on WisdomTree’s proposed rule change, allowing stakeholders to weigh in on the physical redemption framework. This period reflects the SEC’s commitment to transparency and deliberation before final rule adoption.
June 25, 2025: Peirce’s Statement & Altcoin ETF Filing
At a Bitcoin Policy Institute event, Commissioner Peirce stated that the agency is actively reviewing redemption applications and that eventual approval is “likely.” On the same day, Invesco and Galaxy Digital submitted a Solana (SOL) spot ETF registration, marking growing interest in altcoin-based physical ETFs.
3. Impact on Market Participants
Institutional vs. Retail
Though institutional players (authorized participants) will handle physical settlements, retail investors benefit indirectly through improved ETF pricing and narrower premium/discount bands. However, direct physical redemptions and creations remain off-limits to individual traders.
Arbitrage and Liquidity
Authorized participants will deploy arbitrage strategies, exchanging shares for spot crypto (or vice versa) whenever price discrepancies arise. This mechanism should reduce arbitrage opportunities, boosting liquidity and dampening volatility in ETF share prices.
4. Altcoin ETF Developments
Solana (SOL) ETF Submissions
Invesco & Galaxy’s filing for a Solana spot ETF on June 25 adds to earlier submissions by VanEck, Bitwise, and 21Shares. Analyst James Seyffart of Bloomberg raised his approval probability for Solana and XRP spot ETFs to 95%, reflecting growing confidence in the SEC’s willingness to expand physical ETF offerings.
Expected Approval Windows
Given prior ETF launches and regulatory pacing, Solana and XRP spot ETFs could receive SEC approval within two to four months, per Bloomberg analyst Eric Balchunas.
5. Dollar Valuations and Market Size
| ETF Provider | Asset | Estimated AUM upon Launch (USD) |
|---|
| BlackRock | BTC | $2.5 billion |
| WisdomTree | BTC | $1.2 billion |
| VanEck | BTC | $800 million |
| Invesco & Galaxy | SOL | $200 million |
| VanEck | SOL | $150 million |
| Bitwise | SOL | $100 million |
| 21Shares | SOL | $75 million |
Note: AUM figures are estimates based on comparable European ETF launches and current spot market volumes.
Conclusion
The SEC’s move toward in-kind redemptions for Bitcoin spot ETFs marks a pivotal evolution in U.S. crypto markets. By allowing direct asset-for-share exchanges, the industry anticipates tighter ETF tracking, reduced costs, and improved market efficiency. Although individual investors won’t directly participate in the creation/redemption process, they stand to gain from improved price alignment and enhanced liquidity. Simultaneously, altcoin spot ETFs—Solana and XRP—are on the cusp of approval, with high probability windows extending through late 2025. For investors seeking new crypto assets, these developments underscore the growing maturity of digital-asset financial products and the expanding toolkit for practical blockchain integration.
