Fidelity, BlackRock, and 21Shares Lead Efforts to SEC for In-Kind Crypto ETF Reform

• ETF filings advance toward an SEC green light for crypto redemption flexibility.
• Progress on crypto ETF regulation boosts market confidence and investor efficiency.

On July 22, 2024, CoinDesk reported that financial powerhouses Fidelity, 21Shares, and BlackRock filed amended proposals with the U.S. Securities and Exchange Commission (SEC). The firms seek to permit in-kind redemptions for their spot Bitcoin and Ethereum exchange-traded funds (ETFs). This feature would allow investors to exchange ETF shares directly for the underlying cryptocurrencies. Such a structure mirrors a key feature of traditional ETFs, which enhances tax efficiency and minimizes costs.

Current U.S. regulations restrict crypto ETFs to cash redemptions, a process that often triggers taxable events for investors. The proposed changes would bridge this gap by aligning crypto ETFs more closely with conventional ETF structures, which would bolster their attractiveness. Highlighting this momentum, SEC Commissioner Hester Peirce has previously supported in-kind redemption mechanisms, calling them a likely evolution in the regulatory approach to crypto-based financial products.

The SEC continues to delay decisions, postponing related proposals from firms like Bitwise until September 2024. Despite these delays, industry leaders remain steadfast, as the filings represent the sector’s commitment to developing progressive products that improve investor accessibility and operational efficiency. The industry views regulatory clarity on these issues as a crucial milestone toward mainstream adoption and the maturation of cryptocurrency investment vehicles.

Market trends further underscore this growing shift. Spot Bitcoin ETFs have attracted over $15 billion in inflows since their launch in January, demonstrating notable investor interest, while spot Ethereum ETFs have not yet commenced trading. This may signal changing preferences within the crypto investment landscape.

As of 19:10 UTC on July 22, Bitcoin (BTC) was trading at $59,839.04, with its 24-hour trading volume down 2.04%. Meanwhile, Ethereum (ETH) traded at $3,111.88, a 1.36% decline during the same period.