The SEC just made a landmark decision that could reshape crypto investing. On July 29, regulators approved in-kind creation/redemption for Bitcoin and Ethereum ETFs – a major upgrade from the cash-only model.
Why This Is a Game-Changer
✅ Aligns crypto ETFs with gold/oil fund standards
✅ Reduces costs (tighter spreads, better NAV tracking)
✅ Minimizes market impact (less exchange volatility)
✅ Opens floodgates for institutional capital
SEC Chair Paul Atkins called this part of building a “fit-for-purpose” crypto framework. The move came with other key approvals:
- Mixed BTC+ETH ETPs
- Bitcoin ETF options
- Higher derivatives limits (250K contracts)
How In-Kind Works (Vs. Cash Model)
| Cash Model | In-Kind Model |
|---|---|
| APs submit USD → fund buys crypto | APs deliver crypto directly |
| Creates exchange buy/sell pressure | Uses OTC/internal inventory |
| Higher costs, execution lag | Cleaner arbitrage, lower fees |
Potential Market Impacts
🔹 Reduced short-term volatility during large flows
🔹 Stronger price correlation between ETFs and spot markets
🔹 Institutional adoption boost from improved infrastructure
Analysts will watch:
📊 ETF premium/discount behavior
💱 CME futures-spot spreads
📈 Exchange liquidity resilience
The Trillion-Dollar Question
With in-kind mechanisms:
- BlackRock’s IBIT ($86B AUM) could scale toward VOO’s $714B
- At $200K BTC, IBIT would be top-10 ETF without new inflows
- Supply squeeze becomes likely if inflows continue
As SEC Chair Atkins noted: “This modernization removes structural barriers while preserving market integrity.” The crypto ETF revolution just entered its next phase.
