- The SEC now allows crypto funds to trade Bitcoin and Ethereum without using any cash.
- This rule makes cryptocurrency funds cheaper and easier for big investors to use.
- Large firms like BlackRock and Fidelity are expected to benefit from this new rule.
The U.S. Securities and Exchange Commission (SEC) has approved in-kind creation and redemption for cryptocurrency exchange-traded products (ETPs), marking a regulatory shift with far-reaching implications for the crypto investment market. In an official statement issued Tuesday, the SEC confirmed that approved spot Bitcoin and Ether funds can now create and redeem shares using the actual digital assets rather than relying solely on cash.
This decision, made on July 29, 2025, affects major exchanges, including Nasdaq, Cboe BZX, and NYSE Arca, and applies to all approved crypto-based commodity trust shares. According to the SEC, this transition increases the permitted contract limit up to 250,000. The change is more than procedural; it is expected to reshape the fundamental structure of crypto ETP operations in the United States.
SEC Chairman Paul Atkins stated, “It’s a new day at the SEC, and a key priority of my chairmanship is developing a fit-for-purpose regulatory framework for crypto asset markets.” He noted the intent is to foster a system that supports both market integrity and innovation in the digital asset space.
A Game-Changer for Crypto ETF Operations
In-kind creation and redemption allow fund issuers to receive or deliver Bitcoin or Ether directly rather than converting shares into cash. This method is common in traditional commodity ETPs and is now being extended to digital assets for the first time in the U.S.
Jamie Selway, Director of the SEC’s Division of Trading and Markets, explained, “In-kind creation and redemption provide flexibility and cost savings to ETP issuers, authorized participants, and investors, resulting in a more efficient market.” The benefits also extend to reducing transaction costs and tax burdens that typically accompany large-scale cash conversions.
In the past, accredited investors would deposit cash with ETF creators so that they could buy the digital assets. By allowing direct transfers of Bitcoin or Ether, the process becomes less exposed to market fluctuations and trading costs. The new mechanism will increase market liquidity in crypto and build more stable and scalable structures of funds.
Bloomberg ETF analyst Eric Balchunas called the SEC’s move a milestone moment. He noted that it sets the foundation for additional ETF approvals, possibly by early fall. While the rule targets authorized participants and not retail investors, it creates a more functional ecosystem for institutional access to crypto exposure.
Who Stands to Gain the Most?
Firms like BlackRock, Fidelity, and Grayscale stand to benefit most from the regulatory change due to their current market dominance. Together, they control over 85% of all crypto ETF assets.
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iShares Bitcoin Trust (IBIT) at BlackRock is the largest, with an estimated net asset over $87 billion. In-house infrastructure and requests for in-kind approval in its early stages mean that the firm can tap into the benefits of the new framework right away. Closely behind is Fidelity with its Wise Origin Bitcoin Fund (FBTC) that has over $24B in net assets.
Being a major incumbent in the market, Grayscale could apply the in-kind mechanism to lessen some of the discount on its flagship products and aggressively compete with newer entrants. Increased contract limits further empower these firms to push through growth without operational roadblocks.
With institutional flows set to increase with regulatory backing for in-kind transactions, the U.S. is moving one step further towards the financial integration of digital assets.
