A quiet but significant revolution is simmering in the world of crypto ETFs is in-kind redemptions. It sounds technical but this regulatory adjustment has the potential to redefine the way institutional capital flows into Bitcoin and Ethereum ETFs. This could potentially ignite a new institutional adoption cycle.
However, the U.S. Securities and Exchange Commission (SEC) has not approved in-kind redemption for any crypto ETF yet. Such approval would have a big effect on the market, as crypto ETFs would then become more efficient for retail and institutional investors alike.
What Is In-Kind Redemption?
In normal ETF markets, authorized participants (APs), which are usually big institutions, create and redeem ETF shares. Hitherto, in crypto ETFs, they’ve been forced to use cash.
With in-kind redemption, APs would be able to utilize real Bitcoin or Ethereum to swap for ETF shares (and vice versa), rather than converting to cash. This would result in reduced tax burden, quicker and less expensive transactions, and better ETF price tracking. It would also avoid the conversion of assets to/from USD, which would minimize slippage and enhance overall trading efficiency.
Current Filings Awaiting SEC Approval
Various submissions are in progress, pending determination by the SEC regarding in-kind redemptions for crypto ETFs. Here’s an overview of the key proposals:
1. BlackRock’s iShares Bitcoin Trust (IBIT)
Nasdaq recently submitted a proposed rule change to the SEC to enable in-kind redemptions of BlackRock’s IBIT. This would permit institutional investors to exchange real Bitcoin for ETF shares and vice versa, without having to use cash transactions. IBIT is now the largest spot Bitcoin ETF in terms of assets under management (AUM), and this structural improvement could further enhance its appeal.
2. Grayscale’s Ethereum ETFs
In May 2024, Grayscale submitted in-kind redemption approval for its future Ethereum Trust ETF. The SEC has since held up a ruling but is likely to render a decision by June 1, 2025. Grayscale plans to make redemptions in actual Ethereum rather than cash, in the same manner in which traditional commodity ETFs work.
3. VanEck and ARK Invest
VanEck and ARK Invest both filed requests in May 2024 seeking approval for in-kind redemptions for their Bitcoin and Ethereum ETFs. The SEC has delayed its decisions, with final actions due by June 3, 2025.
What Will This Change for ETF Buyers?
If approved, in-kind redemptions will bring a number of important advantages to ETF buyers:
- Reduced Tax Effect: With in-kind redemptions, using actual Bitcoin or Ethereum for redemptions, APs eliminate the taxable event of conversion to cash, which can be attractive to investors wishing to keep tax implications to a minimum.
- Faster Trades: In-kind redemptions would make it possible to trade ETF shares for the underlying cryptocurrency more quickly and effectively, improving the trading experience all around.
- More Accurate Pricing: By avoiding cash conversions, ETF pricing will more accurately represent the current price of Ethereum or Bitcoin, reducing discrepancies between ETF values and market prices.
- Reduced Fees: In-kind transactions may lead to reduced transaction fees and enhanced liquidity because there is no need for conversion to or from USD, which makes crypto ETFs more appealing to both institutional and individual investors.
What Do ETF Analysts Say?
ETF strategists believe that the SEC will eventually approve in-kind redemptions for cryptocurrency ETFs. Bloomberg Intelligence’s James Seyffart has tracked recent submissions and wrote on X, “Eric Balchunas & I expect SEC approval for in-kind at some point this year” (May 10, 2025) in relation to BlackRock’s revised Ethereum ETF filing.
He also pointed out that the first Ethereum ETF application permitted in-kind creation/redemption has a final SEC deadline of approximately October 11, 2025. Seyffart has been saying all along that in-kind redemptions are sensible for institutional efficiency and should have already been included in the initial ETF approvals.
Another widely held analyst opinion is that of Eric Balchunas, who echoes Seyffart on occasions in stating that the SEC is coming round to the notion due to market maturity and encouragement from leading issuers such as BlackRock.
Notably, the SEC has required public feedback on in-kind redemptions for crypto ETFs, signaling a more open chance. As major firms like BlackRock’s IBIT and Grayscale’s Ethereum Trust have concluded, the agency has invited comments from market participants, legal experts, and the general public.
Major crypto ETF filings that could change the game for investors are still waiting for SEC approval, as the SEC hasn’t allowed in-kind redemptions for crypto ETFs yet. If approved, in-kind redemptions would let big players trade Bitcoin or Ethereum directly for ETF shares, cutting taxes, saving on fees, and making prices more accurate. While there’s no set date, many experts believe the SEC could decide by mid-2025.
Also Read: BlackRock Meets with SEC Crypto Task Force; Talks on Staking, ETFs & More
