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- SEC reviews rule changes letting authorised participants exchange Bitcoin or Ether directly for ETF shares.
- Ark 21Shares, Fidelity, Invesco Galaxy, VanEck and WisdomTree filed identical amendments; Cboe BZX lodged a matching rule change.
The United States Securities and Exchange Commission is preparing to let spot Bitcoin and Ethereum exchange‑traded funds create and redeem shares through the transfer of the underlying coins rather than cash. Five of the largest crypto fund sponsors submitted near identical prospectus amendments on 22 July, signalling that regulators had sought harmonised language before granting approval.
Market participants argue that an in kind structure would bring United States products into line with procedures widely used in equity and commodity funds abroad and remove an operational bottleneck that has limited primary‑market activity.
The amendments arrive after eighteen months of live trading in cash‑based spot Bitcoin ETFs, a period in which fund net asset values sometimes diverged from reference prices during bouts of volatility. Allowing authorised participants to deliver Bitcoin or Ether directly to custodians—or receive coins on redemption—is expected to narrow those spreads, reduce tax leakage and deepen liquidity while preserving existing surveillance agreements.
Coordinated filings and exchange rule change point to regulatory green light
Ark 21Shares, Fidelity, Invesco Galaxy, VanEck and WisdomTree each amended their Cboe BZX listings to specify creation baskets made up of whole coins held in regulated cold wallets. The exchange simultaneously filed a rule change extending the same mechanism to forthcoming Franklin Bitcoin, Ethereum and broader crypto index funds.
Bloomberg Intelligence analyst James Seyffart said the synchronised language shows that the SEC’s trading and markets division has settled the broad policy questions and is now focused on technical custody procedures.
Custody pathways and valuation safeguards under SEC scrutiny
While the Commission appears supportive, staff lawyers are testing how coins will move from trading desks to custodians without introducing settlement or security risk. Issuers must show that authorised participants will use identical valuation methods and that any failed settlement will default automatically to cash, preventing unfair advantage. Observers note that the review mirrors the caution displayed when the agency authorised cash‑based creations in January 2024 and reflects its incremental approach to crypto‑market oversight.
Institutional traders who arbitrage price gaps between ETF shares and spot markets view in kind transfers as an essential efficiency tool. Although retail investors may not see an immediate difference, tighter spreads and deeper primary‑market liquidity could lower trading costs over time. If approved, the mechanism would provide a template for future funds that hold alternative tokens and mark another step toward integrating digital‑asset instruments with mainstream capital markets.
