Unlocking the Potential of Bitcoin ETFs: SEC Weighs In-Kind Redemptions

SEC Explores In-Kind Redemptions for Bitcoin ETFs

In a significant development, Hester Peirce, a pro-crypto Commissioner at the U.S. Securities and Exchange Commission (SEC), has indicated that the agency would consider allowing in-kind redemptions for Bitcoin exchange-traded funds (ETFs).

The SEC initially approved Bitcoin ETFs in early 2024, but BlackRock, one of the leading ETF issuers, had agreed to exclude in-kind redemptions to meet the regulator's key demands. In-kind redemptions would enable investors to receive the actual underlying asset, Bitcoin, instead of cash, which is seen as a more streamlined model.

Under the current "in-cash" model, ETF issuers must handle the conversion of Bitcoin themselves, which can lead to operational difficulties and tax complexities. Selling Bitcoin to meet redemption requests can trigger taxable events, making the process less efficient.

Earlier this year, major ETF issuers submitted proposals to the SEC, seeking to allow in-kind redemptions. BlackRock, for instance, filed such a proposal with the Nasdaq in January 2025, reflecting the industry's desire for a more seamless and tax-efficient approach to Bitcoin ETF redemptions.

The SEC's willingness to consider in-kind redemptions for Bitcoin ETFs represents a positive step forward in the ongoing development of the cryptocurrency investment landscape. This move could potentially enhance the accessibility and attractiveness of Bitcoin ETFs for investors, while also streamlining the redemption process for ETF issuers.