🔹 A major shift may be coming to how crypto ETF investors redeem their holdings. SEC Commissioner Hester Peirce has suggested that in-kind redemptions – receiving assets like bitcoin directly instead of cash – are “definitely going to happen” at some point.
Goodbye Cash? ETFs May Soon Offer Redemptions in Crypto
Until now, the U.S. Securities and Exchange Commission (SEC) has enforced a cash-only system for spot bitcoin ETFs, requiring issuers to create and redeem shares in dollars. This rule was applied in January 2024, when the first wave of spot bitcoin ETFs was approved.
But change may be on the horizon.
Nasdaq recently submitted a proposal on behalf of BlackRock to allow in-kind creation and redemption of ETF shares – meaning directly in bitcoin instead of fiat. According to Peirce, such a system could cut costs, improve efficiency, and offer more flexibility to fund managers and investors.
What Would It Mean for Investors?
Peirce explained that this model would let investors receive their bitcoin directly and transfer it into private self-custody wallets, instead of redeeming in cash. This could appeal to those who want true ownership of crypto rather than just exposure through a fund.
Finance professor Vivian Fang from Indiana University illustrated the benefit with a metaphor:
“If you want your egg back, you get it. I don’t need to worry about what it’s worth at the moment – maybe $5, maybe $10 – but I have it set aside for you.”
In other words, investors could receive their actual BTC instead of needing to sell it on the market for cash.
SEC Remains Cautious – But the Door Is Open
Back in December 2023, the SEC instructed ETF issuers to remove any mention of in-kind redemptions from filings. But by the end of 2024, Peirce acknowledged that 2025 may bring this option into reality. While she refrained from making promises, she recognized the growing interest in this redemption method.
Currently, the SEC is reviewing Nasdaq’s Form 19b-4 that seeks a rule change allowing BlackRock’s ETF to operate with in-kind redemptions. Public comments have been invited as part of the standard review process.
BlackRock Leads the Charge, Others Join In
In April, a delegation led by BlackRock’s Head of Regulatory Affairs Benjamin Tecmire met with the SEC’s crypto team to discuss in-kind redemption frameworks.
Meanwhile, Cboe and VanEck also filed for approval to implement in-kind creation and redemption for their spot bitcoin ETFs.
Professor Fang noted that for individual investors, the difference may not be dramatic:
“Even in an in-kind model, investors can convert their bitcoin to cash through a broker. The real change is about efficiency and optionality.”
What’s Next?
In May, the SEC launched a formal review process under Section 19(b)(2)(B) of the Securities Exchange Act of 1934. A final decision hasn’t been made, but approval could come in the second half of 2025 – possibly introducing the first ETFs with crypto-based in-kind redemptions.
If approved, this change could significantly boost the efficiency of crypto ETFs and give investors more control over their digital assets.
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