The operation of crypto ETFs is expected to become more efficient following the U.S. Securities and Exchange Commission’s (SEC) decision to allow “in-kind” creations and redemptions for crypto exchange-traded products (ETPs).
Previously, the creation and redemption of crypto-based ETF units could only be carried out on an “in-cash” basis, which required issuers to buy and sell crypto assets on the open market to fund redemptions and creations.
“This introduces significant transaction costs, exposes the product and its investors to price slippage in the underlying asset class, and makes the [exchange-traded products] more expensive,” noted SEC commissioner Mark Uyeda in a statement.
When the SEC first approved the listing of crypto ETFs, “it was disappointing” that it required these products to use a cash-only redemption structure — “a limitation that resulted in unnecessary costs and burdens,” Uyeda said.
Now, the SEC has approved in-kind creations and redemptions for crypto funds.
“In-kind creation and redemption provide flexibility and cost savings to ETP issuers, authorized participants, and investors, resulting in a more efficient market,” said Jamie Selway, director of the SEC’s division of trading and markets, in a release.
Allowing for in-kind redemptions will also “enable crypto-asset ETPs to access the tools for managing exposure more cheaply, more transparently, and with better alignment to how asset managers and investors use ETPs in other markets,” Uyeda said.
Alongside the decision on the creation/redemption mechanism, the SEC also voted to approve other orders for crypto-based products. These include exchange applications seeking to list and trade an ETP that would hold mixed spot bitcoin and spot ether, options on certain spot bitcoin ETPs and increasing the position limits for listed options on certain bitcoin ETPs.
“Today’s approvals continue to build a rational regulatory framework for crypto, leading to a deeper and more dynamic market,” said SEC chairman Paul Atkins, in a release.