The U.S. Securities and Exchange Commission’s (SEC) recent decision to permit direct cryptocurrency-for-ETF share swaps for Bitcoin and Ether ETFs is viewed by market observers as an infrastructure improvement, rather than a major shift for individual investors.
Eric Balchunas of Bloomberg described the change as simply “a plumbing update,” emphasizing that it won’t fundamentally alter how retail investors engage with crypto-based exchange-traded funds. In a post on X, he clarified that “This doesn’t empower retail investors to directly exchange IBIT for actual Bitcoin,” but it does indicate the SEC’s willingness to recognize crypto as a legitimate asset class.
The update, unveiled on Tuesday, now allows ETF managers to directly exchange crypto coins for ETF shares, a process known as in-kind creation and redemption, instead of using cash transactions. This approach eliminates conversion fees, enhances price discovery, and makes the ETFs operate more effectively, providing advantages for investors through reduced expenses and tighter bid-ask spreads.
Significant institutions behind crypto ETFs are rapidly embracing the new system. On Thursday, Bitwise Asset Management announced that its Bitcoin (BTC) and Ether (ETH) ETFs would adopt in-kind creation and redemption processes. According to the SEC’s July 29 regulation, Bitwise will be the first US crypto fund to implement this structure.
“It simply improves the machinery,” stated Balchunas, noting that past SEC Chair Gary Gensler was initially opposed to in-kind redemptions due to concerns about the source of assets used in creating shares.
This development aligns crypto ETFs more closely with standard exchange-traded products, enhancing their cost-effectiveness and streamlining their operations. Teddy Fusaro, President of Bitwise, indicated that the ruling places crypto funds on “the same footing” as institutions and ETFs.
According to Federico Brokate, Head of US Business at 21Shares, “This action establishes a foundation for a more profound integration of digital assets into the traditional financial ecosystem.”
Related: SEC approves in-kind creations and redemptions for crypto ETPs
US Bitcoin ETFs Now Control Over 6% of Total Supply
The SEC’s recent decision and the action taken by Bitwise occur as US Bitcoin ETFs steadily increase their accumulation of Bitcoin.
According to data from Bitbo, the 12 Bitcoin ETFs currently available in the U.S. collectively hold 1,299,401 BTC, which equates to 6.18% of the total supply of 21 million coins.
The iShares Bitcoin Trust, managed by BlackRock, leads in holdings with 740,601 BTC, valued at $87.66 billion.
The Fidelity Wise Origin Bitcoin Fund ranks second, holding 205,864.2 BTC with an estimated value of $24.37 billion. The Bitwise Bitcoin ETF possesses 40,638.7 BTC, valued at $4.81 billion.
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