Just in: SEC Delays In-Kind Redemptions for Bitcoin and Ethereum ETFs

The U.S. Securities and Exchange Commission (SEC) has postponed its decision on Fidelity’s request to include in-kind redemptions in its spot Bitcoin and Ethereum exchange-traded funds (ETFs). This decision comes as issuers across the crypto industry continue to seek approval for features aimed at improving ETF operations and efficiency.

SEC Postpones Fidelity’s In-Kind Redemption Feature

Fidelity is among several major asset managers that have filed to allow in-kind redemptions in their spot cryptocurrency ETFs. In-kind redemptions let authorized participants exchange ETF shares directly for the underlying crypto assets, instead of cash. These mechanisms are commonly used in traditional ETFs to reduce trading costs and tax consequences.

While the SEC recently acknowledged a similar request from BlackRock related to its spot Ethereum ETF, it has decided to delay Fidelity’s proposals for both Bitcoin and Ethereum ETFs. The regulatory agency has not provided a timeline for when a final decision might be made.

Fidelity is not the only issuer facing delays. In April, the SEC also postponed rulings on in-kind redemption proposals from WisdomTree for its Bitcoin Fund (BTCW) and Ethereum Fund (ETHW), as well as VanEck’s Bitcoin Fund (BITB).

BlackRock Progress and Ongoing Industry Pressure

Earlier this week, the US SEC acknowledged BlackRock’s filing regarding in-kind redemptions for its spot Ethereum ETF. While this does not mean approval, it signals that the SEC is considering the feature more seriously. BlackRock, like Fidelity and others, aims to structure its products in ways that mirror traditional ETFs.

Several asset managers believe that in-kind redemptions will bring operational efficiency to cryptocurrency ETFs. Industry participants are pressing the SEC to adopt consistent standards for all issuers, especially as other regions move forward.

Jurisdictions such as Canada, Hong Kong, and parts of Europe have already approved similar features for crypto-based ETFs.

Upcoming Deadlines for Other Crypto ETF Features

In addition to in-kind redemption proposals, the SEC is also reviewing other ETF features. The agency has set a deadline of June 1 to decide on Grayscale’s request to add staking to its spot Ethereum ETF. Another decision is expected by June 3 for Bitwise and WisdomTree’s updated filings, which also seek approval for in-kind redemptions.

The SEC also recently delayed its decision on a proposal by 21Shares to introduce staking into its Ethereum ETF. This is consistent with a broader trend, as the Commission has postponed several decisions regarding crypto-linked ETFs over the past few months.

Staking, which involves earning rewards by helping secure blockchain networks, is not yet permitted in U.S.-approved spot crypto ETFs. However, this could change following the appointment of Paul Atkins as the new SEC Chair. Atkins, confirmed by the Senate last week, is expected to take a fresh look at crypto ETF policies.