SEC Greenlights In-Kind Trading for Crypto ETPs, Reshaping Bitcoin and Ethereum Investment Landscape

Ammar Raza

Published: Jul 30, 2025

4.6 min read

Updated: Jan 19, 2026 - 10:01:07

SEC Greenlights In-Kind Trading for Crypto ETPs,

Tags: Cryptocurrency, Financial Regulation, Stablecoins

The SEC has approved in-kind creation and redemption for U.S. Bitcoin and Ethereum exchange-traded products (ETPs), a move aligning crypto funds with commodity ETPs like gold. This change eliminates cash-only transactions, cutting costs, tightening spreads, and improving tracking accuracy. Effective immediately (September 2025), the shift is expected to boost liquidity, reduce investor fees, and strengthen market stability while bringing U.S. policy closer to global crypto ETP standards.

Lower Costs: Direct crypto-for-shares exchange reduces fees and spreads by removing costly fiat transactions.
Improved Tracking: In-kind trading prevents deviations from NAV, keeping prices closer to underlying Bitcoin/Ethereum values.
Higher Liquidity: Authorized participants can arbitrage efficiently, tightening markets for retail and institutional investors.
Market Stability: Reduces large disruptive trades in spot crypto markets during high-redemption periods.
Global Alignment: Brings U.S. crypto ETP rules in line with Canada and Germany, signaling broader regulatory maturity.

In a groundbreaking move, the U.S. Securities and Exchange Commission (SEC) has approved in-kind creation and redemption for Bitcoin and Ethereum exchange-traded products (ETPs), a regulatory shift that aligns digital asset funds with long-standing commodity-based ETPs like those for gold.

Source: SEC

The change enables authorized participants (APs) to exchange actual Bitcoin or Ethereum directly for shares of an ETP, eliminating the need for costly and complex cash transactions. The decision is expected to lower investor fees, improve price tracking, and increase overall market liquidity.

“It’s a new day at the SEC,” said Chairman Paul S. Atkins. “This change is a step toward building a fit-for-purpose regulatory framework for crypto asset markets. Investors will benefit through reduced costs and enhanced product efficiency.”

A Historic Regulatory Shift

Previously, crypto ETPs were limited to cash-only creation and redemption, forcing APs to conduct separate trades to buy or sell the underlying digital assets. This inefficiency led to higher transaction costs, wider bid-ask spreads, and deviations from net asset value (NAV).

Now, in-kind trading allows APs to interact with ETP issuers using native crypto assets, just as they do with commodities like gold.

“A key priority of my chairmanship is advancing a smart, flexible framework for digital markets,” Atkins said during the SEC’s July 2025 meeting.

Why In-Kind Trading Matters

Reduced Costs for Investors

Eliminating the need for fiat transactions cuts out middlemen, slashes fees, and tightens bid-ask spreads.

Improved NAV Accuracy

By directly exchanging crypto for shares, in-kind trading prevents artificial price pressure caused by large redemptions, helping ETPs better track their underlying assets.

Better Liquidity and Arbitrage

Authorized participants can now quickly correct market mispricings, boosting ETP liquidity and improving trading conditions for both retail and institutional investors.

Market Stability

In-kind redemptions reduce the need for large spot market trades during periods of high activity, potentially dampening volatility in both ETPs and underlying crypto markets.

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How In-Kind Creation and Redemption Works

Under the in-kind model:

To create shares, an AP sends Bitcoin or Ethereum directly to the fund issuer.
To redeem shares, the issuer sends back the equivalent crypto.

This direct mechanism creates a natural arbitrage loop. For instance, if a Bitcoin ETP trades below its NAV, an AP can buy discounted shares, redeem them for full-value Bitcoin, and profit. This arbitrage brings the ETP price back in line with its NAV.

In contrast, under the cash-only model, APs had to execute trades separately, adding risk, cost, and time delays.

Broader Crypto Market Reforms

The SEC’s decision is part of a wider effort to modernize the regulatory framework around digital assets. Additional approvals announced include:

Proposals to list and trade dual-asset ETPs combining spot Bitcoin and spot Ethereum
Authorization of options and FLEX options on approved spot Bitcoin ETPs
A position limit increase to 250,000 contracts for certain BTC ETP options, matching CFTC thresholds

“This is a critical step for market development,” said Jamie Selway, Director of the SEC’s Division of Trading and Markets. “The flexibility provided by in-kind structures makes crypto ETPs more accessible, scalable, and aligned with existing financial instruments.”

Who Benefits from the New Rules

ETP Issuers:
Can now offer more competitive, low-cost products and streamline operational complexity.

Institutional Investors:
Gain access to better-tracking investment tools that align with traditional asset workflows.

Retail Traders:
Stand to benefit from tighter spreads, lower management fees, and improved price efficiency.

Market Makers & APs:
Enjoy improved arbitrage mechanisms and reduced capital inefficiencies when providing liquidity.

Bringing U.S. Crypto ETPs Closer to Global Standards

The rule change aligns U.S. policy with crypto ETP practices in countries like Canada and Germany, where in-kind creation has long been standard. For years, industry leaders and investment firms have argued that restrictive U.S. rules stifled crypto innovation.

“Today’s approval brings the U.S. market one step closer to a rational, efficient framework for digital asset investing,” said a spokesperson for a leading crypto ETP issuer.

What’s Next

These changes take immediate effect for all existing Bitcoin and Ethereum ETPs and will apply to future offerings. The SEC also issued scheduling orders inviting public comment on proposals to list and trade two large-cap crypto-based ETPs.

This decisive move marks a turning point for U.S. crypto regulation, signaling greater openness to mainstream integration of digital assets.