The U.S. Securities and Exchange Commission (SEC) has long been at the center of regulatory debates surrounding cryptocurrency investment products. One of the most anticipated developments in the digital asset space is the potential approval of in-kind redemption for spot Bitcoin ETFs — a mechanism that could significantly improve efficiency, reduce costs, and enhance market liquidity. Recently, SEC Commissioner Hester Peirce, widely known as the "Crypto Mom," confirmed that such proposals are actively under review.
This marks a pivotal moment for the Bitcoin ETF ecosystem, which, despite gaining regulatory approval in January 2024, still operates under restrictive cash-only redemption rules. As industry leaders like BlackRock push forward with formal filings, the momentum for structural reform is building.
Current Bitcoin ETF Redemption Rules: Cash-Only Limitations
When the SEC approved the first wave of spot Bitcoin ETFs on January 11, 2024, it came with a critical constraint: all creations and redemptions must be conducted in cash, not Bitcoin. This means authorized participants (APs), such as BlackRock or Fidelity, must sell BTC from their reserves to fulfill investor redemptions — a process that introduces several inefficiencies.
For example:
- Higher operational costs: Selling Bitcoin triggers tax events and transaction fees.
- Market slippage: Large sales can impact Bitcoin’s price, especially during volatile periods.
- Tracking error risk: Cash-based settlements may cause ETF prices to deviate from the underlying asset value.
While this framework provided a cautious entry point for regulators, many in the crypto and financial sectors argue it undermines the full potential of a truly efficient ETF structure.
“An ETF should reflect its underlying asset as closely as possible. Cash redemptions add friction where there shouldn’t be any,” said an institutional market maker familiar with ETF mechanics.
👉 Discover how next-gen ETF structures could reshape digital asset investing.
The Push for In-Kind Redemption: BlackRock Leads the Charge
In January 2025, BlackRock submitted a Form 19b-4 filing through Nasdaq, formally requesting the SEC allow in-kind creation and redemption for its iShares Bitcoin Trust (IBIT). This mechanism would enable APs to exchange baskets of Bitcoin directly for ETF shares — and vice versa — without converting to fiat currency.
The benefits are clear:
- Lower costs: Eliminates unnecessary BTC sales and associated fees.
- Improved tax efficiency: Avoids taxable events for fund managers.
- Tighter price alignment: Reduces tracking error between ETF and spot Bitcoin.
- Greater liquidity: Enables smoother arbitrage and market-making activities.
Following BlackRock’s lead, other major asset managers, including Fidelity and Ark Invest, have also signaled support or submitted similar proposals. The collective push reflects growing confidence in Bitcoin’s role as a legitimate asset class — and frustration with outdated regulatory constraints.
Hester Peirce Confirms: “It’s on the Way”
At the 2025 Bitcoin Policy Summit in Washington, D.C., Commissioner Hester Peirce addressed growing speculation about the SEC’s stance on in-kind redemptions. When asked whether the agency might soon approve these mechanisms, she responded:
“This is something that will happen at some point. These proposals are under review.”
Her statement carries significant weight. As one of the SEC’s most consistent advocates for balanced crypto regulation, Peirce has long argued for innovation-friendly policies that protect investors without stifling progress. Her acknowledgment that these filings are actively being evaluated suggests the agency is at least considering a shift.
While she stopped short of guaranteeing approval, her tone was notably optimistic — a departure from the SEC’s traditionally cautious posture.
Why In-Kind Redemption Matters: Efficiency Meets Market Integrity
Beyond cost savings, in-kind redemption strengthens the structural integrity of Bitcoin ETFs. Here’s why:
- Preserves On-Chain Scarcity: By avoiding forced BTC sales, funds maintain their holdings, reinforcing Bitcoin’s deflationary narrative.
- Reduces Price Volatility: Less selling pressure during redemptions means fewer artificial dips in market price.
- Aligns with Traditional ETF Models: Most equity ETFs use in-kind mechanisms — parity brings legitimacy.
- Encourages Global Adoption: A more efficient product attracts institutional capital worldwide.
Bloomberg ETF analyst James Seyffart has been vocal about the benefits since early 2025. He noted:
“If the SEC allows in-kind redemptions, we’ll see tighter spreads, better tracking, and more robust secondary market activity. It’s a no-brainer from an efficiency standpoint.”
His analysis underscores a broader consensus: modernizing redemption rules isn’t just desirable — it’s necessary for the long-term health of the ETF market.
👉 See how advanced redemption models could boost transparency and performance.
Frequently Asked Questions (FAQ)
Q: What is in-kind redemption in a Bitcoin ETF?
A: It allows authorized participants to exchange actual Bitcoin for ETF shares (or vice versa) instead of using cash. This reduces transaction costs and improves price accuracy.
Q: Why did the SEC initially block in-kind redemption?
A: Regulators cited concerns over market manipulation, custody risks, and pricing transparency. However, with proven track records since early 2024, many believe those concerns have been mitigated.
Q: Will allowing in-kind redemption increase Bitcoin’s price?
A: Indirectly, yes. By reducing forced selling during redemptions, downward pressure on price decreases. Additionally, improved efficiency could attract more institutional demand.
Q: How long might the SEC take to decide?
A: While no timeline has been set, past rulings suggest decisions could come within 60 to 180 days after public comment periods close. Some proposals may face extensions.
Q: Are staking-related ETF changes also under review?
A: Yes, though they remain more contentious. The SEC postponed decisions on staking-enabled crypto ETFs alongside in-kind proposals, indicating ongoing scrutiny.
Q: Which companies have filed for in-kind redemption?
A: BlackRock was the first to file via Nasdaq. Others, including Fidelity, VanEck, and Ark/21Shares, are expected to follow with similar submissions.
The Road Ahead: Regulatory Evolution in Progress
The current review process represents more than just a technical adjustment — it signals a potential evolution in how the SEC views digital assets. Allowing in-kind redemption would acknowledge that Bitcoin ETFs can operate safely and efficiently within established financial frameworks.
Moreover, it sets a precedent for future innovations, such as:
- Yield-bearing crypto ETFs
- Multi-asset digital trusts
- Tokenized fund structures
As pressure mounts from both Wall Street and Capitol Hill, the SEC faces a choice: maintain rigid controls or embrace modernization. With Hester Peirce affirming that change is “on the way,” momentum appears to be shifting.
👉 Stay ahead of regulatory shifts shaping the future of crypto finance.
Final Thoughts
The debate over in-kind redemption is not merely technical — it’s symbolic. It reflects the broader struggle between innovation and regulation in the digital age. With major asset managers pushing forward and key SEC voices acknowledging progress, the path toward more efficient Bitcoin ETFs is becoming clearer.
While challenges remain, the fact that these proposals are now under active review offers hope for a more mature, scalable crypto investment landscape in 2025 and beyond.
Core Keywords:
Bitcoin ETF, in-kind redemption, Hester Peirce, SEC regulation, spot Bitcoin ETF, ETF efficiency, cryptocurrency regulation, BlackRock ETF