US SEC Seeks Comments on Proposal to Let Bitcoin ETFs Swap Shares for Underlying Assets

On Feb. 5, Cboe BZX Exchange, a securities exchange, filed an amended application to permit so-called “in-kind” creations and redemptions

The US Securities and Exchange Commission is considering an application from Cboe BZX Exchange to permit in-kind creations and redemptions for two ETFs, the ARK 21Shares Bitcoin ETF (NYSE:ARKB) and the 21Shares Core Ethereum ETF (NYSE:CETH).

This development comes amid a flurry of ETF proposals and anticipation of regulatory approvals in the US.

The application, filed on Feb. 5, would allow authorized participants to create new ETF shares by exchanging a basket of the ETF’s underlying assets for a “block” of typically several thousand shares. Redemptions would reverse this process.

In-kind creations and redemptions are more tax efficient compared to cash creations and redemptions, where an ETF swaps shares for cash. As a result, in-kind creations and redemptions are preferred by most ETF issuers and investors.

However, the SEC has not yet permitted in-kind redemptions for spot crypto ETFs. Cash creations and redemptions have been permitted for several spot crypto ETFs, including ARKB and CETH.

This application follows a request by Nasdaq, a US securities exchange, in January to facilitate in-kind creations and redemptions for BlackRock's iShares Bitcoin Trust (NYSE:IBIT), the largest ETF by net assets.

According to BlackRock's website, the ETF has assets under management (AUM) of around $57 billion. For comparison, ARKB and CETH hold AUMs of approximately $5 billion and $20 million, respectively, based on 21Shares’ website.

After Donald Trump — who promised to turn the US into the "world's crypto capital" — won the US elections and began his presidential term on Jan. 20, US regulators are expected to soften their stance on crypto oversight.

In 2024, asset managers submitted a flurry of regulatory filings to list ETFs holding altcoins, including Solana (CRYPTO: SOL).

Issuers are also awaiting approval for several planned crypto index ETFs designed to hold diverse baskets of digital tokens.

Bloomberg Intelligence anticipates “relatively high odds of approval across the board” for new crypto ETF filings.