SEC approves in-kind redemptions for Bitcoin ETFs
The Securities and Exchange Commission approved in-kind creations and redemptions for US spot Bitcoin and Ether exchange-traded funds this week, allowing authorized participants to exchange the underlying coins directly for ETF shares rather than routing every transaction through cash. The change takes effect on August 1 and applies to all eleven existing spot Bitcoin funds and the nine Ether funds approved last year.
The mechanical change is technical but the consequences are not. Under the cash-only model that has governed the funds since their January 2024 launch, every share creation forced the issuer to buy Bitcoin on the open market, and every redemption forced it to sell, generating taxable events inside the fund that are eventually passed on to ordinary holders. In-kind transfers remove that buy-and-sell loop entirely, which reduces tax drag, narrows the gap between a fund's market price and its underlying value, and lets the products absorb large institutional flows without moving the spot market against themselves.
The benefit is uneven. Retail holders gain mostly through tighter spreads and lower capital gains over time, while large allocators gain by being able to move size in and out without slippage. Self-directed brokerage accounts will still trade through cash on the secondary market.
The approval also closes the last meaningful structural gap between Bitcoin ETFs and traditional equity ETFs, which have used in-kind settlement since the early 1990s. It is the quiet step that signals these products are no longer treated as a separate category by US regulators.
