Bitcoin and Ethereum ETFs Move Closer to In-Kind Redemption Structure, Bloomberg Analyst Sees Positive Shift

Several major ETF issuers, including 21Shares, Fidelity, Franklin Templeton, Galaxy, VanEck, and WisdomTree, have filed amended applications with the U.S. Securities and Exchange Commission (SEC) seeking approval to implement in-kind creation and redemption for their Bitcoin and Ethereum ETFs, according to The Block.

Bloomberg Intelligence ETF analyst James Seyffart highlighted the move on X, noting that five funds listed on the CBOE submitted amendments. He called it a positive signal that suggests continued momentum and fine-tuning in discussions with the SEC.

The in-kind mechanism allows authorized participants, typically large Wall Street institutions and market makers, to directly exchange ETF shares for the underlying crypto assets. Retail investors will still not be able to redeem ETF shares for actual Bitcoin or Ethereum.

Seyffart noted that while most investors are unlikely to notice a change since current crypto ETFs already trade with high efficiency, the adjustment aligns crypto ETFs with traditional exchange-traded product standards. He said this would improve operational consistency without disrupting user experience.

In response to a user comment suggesting it would be ideal if consumers could withdraw or deposit actual ETH into the ETF with certain thresholds, Seyffart replied, “I personally think withdrawals like this will eventually happen. But it may be in the distant future. One step at a time.” He noted that similar functionality already exists for some gold ETFs.

Earlier in July, SEC Delayed Decisions on Bitwise and BlackRock In-Kind Redemption Proposals

Previously, the SEC extended the review period for in-kind redemption proposals from companies such as Bitwise and BlackRock. According to Decrypt, the SEC announced on July 17 that it would delay its decision on Bitwise’s in-kind redemption requests for its Bitcoin ETF Trust and Ethereum ETF, setting a new deadline of September 8. One day earlier, on July 16, the SEC also postponed its ruling on BlackRock’s iShares Ethereum Trust (ETHA) application, with a revised decision date of August 26.

The in-kind redemption mechanism would allow authorized participants to directly exchange ETF shares for the underlying crypto assets. This structure could help investors minimize tax exposure, but the SEC has raised concerns about its complexity and potential security risks.

While approval remains uncertain, the latest filings suggest that dialogue between issuers and the SEC is ongoing. Continued engagement may signal incremental progress toward aligning crypto ETFs with the operational standards of traditional exchange-traded products.