Main Points:
- The SEC has authorized in‑kind creations and redemptions for spot Bitcoin and Ethereum ETPs, aligning them with traditional commodity ETPs.
- This change is expected to reduce transaction costs, tighten spreads, and increase market efficiency.
- Authorized participants can now exchange actual BTC and ETH for ETF shares, avoiding cash conversions.
- Spot Bitcoin ETFs have amassed over $152 billion in AUM, while Ethereum ETFs have surpassed $10 billion.
- Recent inflow trends show $6.6 billion into Bitcoin ETFs over 12 trading days, and $2.4 billion into Ether ETFs over six days.
- The regulatory shift heralds deeper institutional participation and advances crypto’s integration into mainstream finance.
Regulatory Shift: Details of the SEC’s Approval
In a landmark July 29, 2025 ruling, the U.S. Securities and Exchange Commission voted to permit in‑kind creations and redemptions for authorized participants in crypto asset ETPs. Previously, spot Bitcoin and Ethereum ETPs were restricted to cash‑only redemptions, forcing issuers to convert proceeds on the open market—incurring slippage and additional trading costs. With today’s orders, these products will mirror traditional commodity ETPs by allowing authorized participants to deliver or receive the underlying tokens directly when creating or redeeming shares.
Key Provisions
- In‑Kind Creation & Redemption: Authorized participants (APs) can now exchange actual BTC or ETH for ETF shares, bypassing cash transactions.
- Scope: Applies to all approved spot Bitcoin and Ethereum products, including mixed spot BTC/ETH ETPs and related options.
- Additional Measures: The SEC also greenlit mixed-asset ETPs, expanded options position limits up to 250,000 contracts, and solicited public comment on new exchange listings.
Market Implications: Cost Efficiency & Liquidity
SEC Chairman Paul S. Atkins hailed the move as ushering in “a new day,” emphasizing that a fit‑for‑purpose regulatory framework lowers investor costs and boosts efficiency. Jamie Selway, Director of Trading and Markets, echoed that in‑kind processes bring flexibility and cost savings to issuers, APs, and investors alike.
- Lower Trading Costs: By eliminating the need to buy or sell crypto in the spot market when redeeming ETF shares, funds can avoid slippage and reduce bid‑ask spreads.
- Tighter Spreads & Deeper Liquidity: Direct token transfers allow APs to manage baskets more precisely, especially during volatile periods, fostering a more orderly market.
- Enhanced Market Alignment: Crypto ETPs now adhere to the structural norms of commodity ETFs, which may attract institutional managers accustomed to in‑kind mechanisms.
Demand & Inflows: Recent Trends
Investor appetite for crypto ETPs remains robust. Over a 12‑day period in July, spot Bitcoin ETFs recorded net inflows of $6.6 billion, lifting total net assets to approximately $152.4 billion, or about 6.5 percent of Bitcoin’s market capitalization.
Similarly, spot Ether ETFs have outpaced Bitcoin over the past six trading days, drawing nearly $2.4 billion in net inflows—underscoring growing institutional interest in Ethereum’s utility and DeFi applications.
These inflow dynamics suggest that investors are increasingly viewing crypto ETPs not just as trading vehicles, but as core portfolio allocations.
Comparative AUM Analysis
[Insert Figure 1 here: Comparative AUM of US Bitcoin and Ethereum ETFs; see diagram file at]
Figure 1 illustrates the significant scale gap between Bitcoin and Ethereum ETFs, with Bitcoin commanding roughly $152 billion in AUM versus Ethereum’s $10 billion.
Future Outlook: Mainstream Integration & Product Evolution
The SEC’s in‑kind approval is likely to accelerate product innovation and institutional adoption:
- New Products: Expect proposals for basket-style ETPs holding a diversified mix of tokens, and potentially in‑kind frameworks for emerging asset ETPs (e.g., Solana, XRP).
- Enhanced Infrastructure: APs and custodians will develop more robust processes for token transfers, collateral management, and operational risk controls.
- Regulatory Precedent: This decision may pave the way for in‑kind structures in other jurisdictions, promoting global harmonization of crypto asset regulations.
Conclusion
By aligning crypto ETPs with established commodity ETF practices, the SEC has materially improved the efficiency, cost structure, and market integrity of these products. Institutional and retail investors alike stand to benefit from tighter spreads, reduced transaction costs, and enhanced liquidity. As inflows continue to pour into spot Bitcoin and Ethereum ETFs, this regulatory shift cements the role of crypto assets in mainstream financial markets, inviting a new wave of innovation and participation.
