SEC Approves In-Kind Creations and Redemptions for Bitcoin

On July 29, 2025, the U.S. Securities and Exchange Commission issued Release No. 34-103571, granting accelerated approval to a suite of proposed rule changes submitted by The Nasdaq Stock Market LLC, Cboe BZX Exchange, Inc., and NYSE Arca, Inc. (the “Exchanges”). These rule changes permit a select group of Bitcoin– and Ether-based Commodity-Based Trust Shares to effect in-kind creations and redemptions—a mechanism long available to other commodity-based exchange-traded products (ETPs), such as those holding gold or silver.

This order reflects a significant evolution in the SEC’s regulatory stance toward crypto assets, aligning these digital asset products with structural norms of traditional commodities markets. The decision brings clarity and efficiency to crypto ETPs while reinforcing the Commission’s commitment to investor protection and market integrity under the Exchange Act.

Regulatory Framework: Section 6(b)(5) and the Basis for Approval

The SEC’s decision was grounded in its statutory mandate under Section 6(b)(5) of the Securities Exchange Act of 1934 (15 U.S.C. § 78f(b)(5)). That section requires that rules of national securities exchanges be designed:

“…to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.”

After reviewing the rule change proposals submitted under Rule 19b-4 (17 CFR § 240.19b-4) by the Exchanges, the Commission concluded that permitting in-kind mechanisms was consistent with these statutory objectives.

Key Proposals and ETPs Affected

The approved proposals encompass nine filings across the three exchanges, including:

iShares Bitcoin Trust and iShares Ethereum Trust (SR-NASDAQ-2025-008; SR-NASDAQ-2025-038)
ARK 21Shares Bitcoin ETF and 21Shares Core Ethereum ETF (SR-CboeBZX-2025-010)
Fidelity Wise Origin Bitcoin Fund and Fidelity Ethereum Fund (SR-CboeBZX-2025-023)
VanEck Bitcoin and Ethereum ETFs (SR-CboeBZX-2025-031)
WisdomTree Bitcoin Fund (SR-CboeBZX-2025-033)
Invesco Galaxy Bitcoin and Ethereum ETFs (SR-CboeBZX-2025-035)
Franklin Bitcoin, Ethereum, and Crypto Index ETFs (SR-CboeBZX-2025-050)
Bitwise Bitcoin ETF Trust and Bitwise Ethereum ETF (SR-NYSEARCA-2025-38)

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All these products had previously been approved under a cash-only creation and redemption model, which the Commission now explicitly permits to be supplemented with in-kind processes involving spot Bitcoin or Ether, as applicable.

Market and Operational Impact

The order cites various benefits of in-kind processes, noting that they may:

“…enhance tax efficiencies and minimize transaction costs” (Release No. 34-103571, at 5).

These mechanisms allow authorized participants to transact directly in the underlying asset—delivering or receiving digital assets like BTC or ETH in-kind, rather than converting to or from cash. This is expected to:

Lower tracking error between the ETP and its underlying assets.
Enhance arbitrage efficiency, thereby tightening bid-ask spreads.
Align regulatory treatment with long-standing precedents for commodity-based ETPs.

The Commission specifically observed that the proposals “remove impediments to and perfect the mechanism of a free and open market”—language directly echoed from Section 6(b)(5) and a signal of regulatory comfort with the maturing digital asset market structure.

Accelerated Approval and Procedural Integrity

The Commission justified accelerated approval under Section 19(b)(2) of the Exchange Act (15 U.S.C. § 78s(b)(2)), citing the proposals’ consistency with existing ETP frameworks and the absence of novel regulatory issues. Comment letters from market participants—including support from investors noting benefits such as increased tax efficiency and improved market integrity—were considered part of the record.

Importantly, the SEC emphasized that the approved Trusts must continue to comply with all applicable continuing listing standards of their respective exchanges: Nasdaq Rule 5711(d), BZX Rule 14.11(e)(4), and NYSE Arca Rule 8.201-E.

Conclusion

With Release No. 34-103571, the SEC takes a meaningful step toward harmonizing the treatment of digital assets within the broader capital markets architecture. By explicitly tying the approval to Section 6(b)(5)’s investor protection and market integrity provisions, the Commission reinforces that innovation can coexist with rigorous regulatory oversight.

As Chair Paul S. Atkins noted in the accompanying press release, “It’s a new day at the SEC… Investors will benefit from these approvals, as they will make these products less costly and more efficient.”

For asset managers, market participants, and compliance professionals, this action not only enhances the operational toolkit available for crypto ETPs, but also signals a future in which digital assets are subject to rational, structured, and reliable regulatory pathways.

For further analysis on ETP structuring, Exchange Act compliance, or strategic engagement with the SEC’s digital asset rulemakings, contact Braeden Anderson.