SEC approves spot-based cryptocurrency ETF creation and redemption formula, directly accepting Bitcoin and Ethereum

The U.S. Securities and Exchange Commission (SEC) has officially allowed the 'in-kind' creation and redemption of spot cryptocurrency Exchange Traded Funds (ETFs). This is a measure that provides a practical turning point in ETF operation methods, moving away from the existing cash-based model, and is a step that key industry stakeholders have been waiting for years. Through this decision, the SEC has approved major cryptocurrency ETF operators and Authorized Participants to directly create and redeem ETF shares based on actual assets such as Bitcoin (BTC) and Ethereum (ETH). This new method allows ETF shares to be issued or redeemed with precise quantities of cryptocurrency without trading through exchanges, enabling reduced transaction fees and narrower bid-ask spreads. Paul Atkins, SEC Commissioner, said, "This decision will make cryptocurrency ETF products more efficient and affordable, providing better benefits to investors," offering a positive regulatory assessment. Jamie Selway, Director of the SEC's Market Trading Division, emphasized that it "provides strong advantages in flexibility and cost compared to the existing model and will be a stepping stone to improving the cryptocurrency ETF market structure." ETF specialist Eric Balchunas assessed the decision as "not a direct major change for retail investors, but an important measure that fundamentally improves the 'plumbing line' of ETF operations." This measure is particularly a change awaited by major ETF operators like BlackRock and Grayscale. They have long requested the introduction of an in-kind trading model from the SEC, and this change is expected to significantly improve the ETF's liquidity, price accuracy, and asset allocation efficiency. Meanwhile, ETF analyst Nate Geraci predicted that "after this authorization, the SEC will likely focus on allowing coin staking functionality in ETFs" and suggested "approval is possible within the year." In fact, the SEC has officially received a regulatory amendment from Nasdaq regarding staking for the iShares Ethereum ETF. The SEC has also approved additional derivatives, including ETFs mixing Bitcoin and Ethereum, Bitcoin ETF-based option products, and FLEX options with flexible maturity settings. Particularly, the Ethereum spot ETF has recorded 18 consecutive net inflows, with approximately $3.9 billion in new funds recently. This SEC measure is expected to increase the institutional maturity of the cryptocurrency ETF market and serve as a significant catalyst for institutional investor inflow and liquidity improvement. The industry is now focusing on the potential approval of ETFs with 'staking functionality'.