Key Takeaways
- Wall Street to gain? Absolutely institutions get faster, cheaper access to crypto through ETFs.
- Retail investors won’t benefit immediately, but the change lays the foundation for future access.
- The shift aligns crypto ETFs with traditional ETFs and signals long-term market maturity.
Wall Street to Gain? Big Players Push for In-Kind Crypto Moves
A new wave of change is heading for the crypto ETF world and Wall Street stands to gain the most from it.
The U.S. is being asked by major ETF providers, including Fidelity, Ark 21Shares, VanEck, Invesco Galaxy, and WisdomTree.
Securities and Exchange Commission (SEC) to approve a better way of handling crypto ETFs.
Right now, if you want shares in a crypto ETF, you have to pay in cash.
Then, the ETF issuer uses that cash to buy Bitcoin or Ethereum. It works but it’s clunky.
These providers want to simplify things by allowing in-kind redemptions, meaning investors could send actual Bitcoin (BTC) or Ethereum (ETH) directly in exchange for ETF shares or vice versa.
This sounds small, but it could be a big deal for how crypto ETFs work.
As Bloomberg ETF analyst James Seyffart put it:
“More encouraging indications that Bitcoin and Ethereum ETFs will be able to create and redeem in-kind.”
If this gets approved, ETFs would become cheaper and faster to manage especially for institutions.
Wall Street to Gain? But Retail Might Be Left Out (For Now)
So, let’s be real Wall Street to gain? Yes, at least in the short run.
These new rules won’t help the everyday investor just yet.
They’re really designed for authorized participants (APs) the big financial firms that move large volumes of ETF shares every day.
These firms will now be able to trade ETFs directly for crypto, cutting out steps, reducing fees, and improving efficiency.
Meanwhile, most retail investors won’t notice much change, simply because their brokers don’t handle crypto in a way that supports in-kind transfers.
Seyffart cleared that up too:
“The vast majority of people won’t even see a difference… These products already trade extremely efficiently.”
So yes, the system gets better but only if you’re a major player.
Why Did the SEC Go with Cash in the First Place?
You might be wondering, Why didn’t they do this from the start?
Well, when Bitcoin ETFs first launched, the SEC said they had to stick to cash creations and redemptions.
Why? Mainly to keep things simple and avoid money laundering risks.
If only ETF issuers handle the crypto itself, there’s less chance of bad actors slipping through the cracks.
Fox Business correspondent Charles Gasparino summed it up: the SEC was nervous about ETFs being used for shady crypto transactions.
Also, as ETF analyst Eric Balchunas noted:
“Cash creates make sense… Broker-dealers can’t legally handle Bitcoin.
This keeps them compliant.”
In short, cash was safer but not smarter or faster.
If This Changes, How Does It Help the Crypto Market?
If the SEC gives this the green light, it could really shake up how crypto ETFs operate.
Instead of ETF issuers having to buy or sell crypto each time shares are created or redeemed, they could just receive or send BTC or ETH directly.
That’s not only faster it’s cheaper and way more efficient.
Other places like Hong Kong already use this model, and it’s working well.
So the U.S. may be playing catch-up here. If approved, this could make U.S. based crypto ETFs more competitive and Wall Street stands to benefit first.
Plus, this isn’t a brand-new concept. Some gold ETFs already work this way, allowing institutions to deposit or withdraw physical gold instead of cash.
Could Regular Investors Benefit Down the Road?
Right now, the average investor probably won’t notice anything new. But that doesn’t mean the door is closed forever.
As more brokers start offering crypto custody and as regulations adapt we might eventually see in-kind crypto redemptions available to retail investors, too.
That could mean better pricing, tighter spreads, and more control over how you invest in crypto.
For now though, Wall Street gets the upgrade, and retail will have to wait.
Want to explore more? Check out:
- Bloomberg’s ETF market coverage
- The SEC’s official ETF filing system