In-kind redemption for Bitcoin and Ethereum ETFs get ‘positive sign’ as Cboe’s files amendments

Cboe has submitted amendments for five crypto-related exchange-traded funds (ETFs) that would allow authorized participants to create and redeem shares in-kind, which is a positive sign for the approval of such funds.

Bloomberg ETF analyst James Seyffart shared on July 22 a screenshot of the exchanges’ docket showing the amended rule filings. The amendments relate to issuers ARK 21Shares, VanEck, Fidelity, WisdomTree, and Invesco Galaxy.

Seyffart described the cluster of filings as a “positive” signal that the Securities and Exchange Commission (SEC) is working with issuers to finalize an in-kind framework rather than resisting it. He characterized the process as fine-tuning, not stonewalling.

In-kind redemptions enable investors to exchange Bitcoin (BTC) or Ethereum (ETH) for the underlying assets, rather than cash, and receive them upon redemption.

Not noticeable by the retail

Seyffart also addressed a recurring misconception. The shift to in-kind would not let retail investors swap ETF shares for Bitcoin or Ethereum directly. 

Only authorized participants, such as large Wall Street firms and market makers, would be responsible for handling those transfers. For most investors, nothing will appear different on the screen because existing spot Bitcoin ETFs already trade closely to their net asset value.

The benefit is then structural, as crypto ETPs would be treated the same way as commodity and equity products that commonly use in-kind flows, enhancing tax efficiency and lowering friction inside the fund.

If the Commission signs off, authorized participants will be able to move crypto directly instead of sourcing or unwinding large cash positions each time they create or redeem baskets. 

That change could reduce spreads and hedging costs, especially in volatile markets, and give issuers more flexibility in portfolio management. 

Although retail wouldn’t notice the changes directly, smoother primary-market plumbing tends to reinforce secondary-market efficiency.

Long queue

The latest Cboe batch joins a growing queue of filings that either request or contemplate in-kind flexibility. 

Nasdaq has already requested that BlackRock’s iShares Bitcoin Trust be converted to in-kind creations and redemptions, following language in the trust’s January 2024 S-1 that stated the sponsor could make the switch once regulators approved. 

A Federal Register notice in late May also described full in-kind mechanics for an Ethereum trust on Nasdaq, detailing how APs would deliver or receive ether. 

NYSE Arca hosts Bitwise’s Bitcoin and Ethereum ETFs, which from the outset proposed pure in-kind baskets. 

Collectively, these filings form the pending docket the SEC must clear before any fund can move away from the cash-only model imposed at launch.

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