Will In-Kind Transactions Revolutionize Bitcoin and Ethereum ETFs?

2 min read | January 28, 2025 03:12 AM EST | By Team Kalkine Media

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Will In-Kind Transactions Revolutionize Bitcoin and Ethereum ETFs? — Image source: Shutterstock

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Highlights:

CBOE seeks SEC approval for changes to Bitcoin and Ethereum ETFs.

Proposed amendment would allow in-kind transactions for ETF creation and redemption.

The changes are intended to focus on institutional participants, not retail investors.

The CBOE BZX Exchange has filed a request with the U.S. Securities and Exchange Commission (SEC) to amend the operational framework of Bitcoin and Ethereum exchange-traded funds (ETFs). This request pertains to the 21Shares Core Ethereum ETF and the ARK 21Shares Bitcoin ETF, with the aim of enabling in-kind transactions for creation and redemption.

Currently, the ETFs are authorized for trading under BZX Rule 14.11(e)(4). If the SEC approves the requested changes, Authorized Participants (APs) will be able to exchange shares for the underlying cryptocurrency assets rather than using cash. This amendment could streamline the process of ETF creation and redemption, potentially improving market efficiency by eliminating the need to liquidate Bitcoin or Ethereum assets before acquiring ETF shares.

The proposed change primarily targets institutional participants, excluding retail investors. This could result in a more efficient market for these ETFs, reducing friction between the ETFs and the broader cryptocurrency market. Such a shift may signal increased institutional involvement in the cryptocurrency sector.

The SEC has previously evaluated similar filings, and not all submissions from CBOE have received approval. For instance, the SEC rejected two filings related to spot Solana ETFs due to concerns about whether Solana qualifies as a security under U.S. regulations.

The SEC typically publishes filings in the Federal Register and subjects them to a review process. While CBOE has previously obtained approval for options on Bitcoin ETFs, other applications, such as the Grayscale Bitcoin Mini Trust, were denied.

If the proposed changes are approved, they could represent a significant shift in the functioning of Bitcoin and Ethereum ETFs, particularly in regard to institutional participation and market structure.

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