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Crypto Exchange Transactions via Equity-Based Products See Large-Scale Growth

SEC Approval Adheres to Customary Procedures for Comparable Exchange-Traded Products

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Crypto Exchange Processes In-Kind Contributions and Rewards for ETPs Significantly Increases
Crypto Exchange Processes In-Kind Contributions and Rewards for ETPs Significantly Increases

Crypto Exchange Transactions via Equity-Based Products See Large-Scale Growth

The United States Securities and Exchange Commission (SEC) has made a significant move in the crypto space by approving orders that permit authorized participants to create and redeem crypto exchange-traded product (ETP) shares directly with the underlying assets [1]. This decision aligns crypto ETPs with other commodity-based ETPs regulated by the SEC, introducing a more efficient, flexible, and cost-saving mechanism for market participants.

This change means that funds no longer need to sell or buy underlying crypto assets in the market to meet creation or redemption demands, avoiding market impact and fees [1][4]. In-kind transactions also help investors manage capital gains more efficiently by exchanging shares for assets rather than liquidating for cash [4].

The ability to transact in-kind enhances flexibility for ETP issuers, authorized participants, and investors, leading to a more liquid and dynamic market [3]. According to Eric Balchunas, senior ETF analyst at Bloomberg, this approval will lead to an "explosion of option-based bitcoin ETFs" [2].

SEC Chair Paul Atkins emphasized that this approval is part of a broader effort to develop a fit-for-purpose regulatory framework for crypto markets, making crypto ETPs "less costly and more efficient" and fostering a deeper, more rational marketplace [1][3][5].

Jamie Selway, Director of the Division of Trading and Markets at the SEC, noted that the Commission's decision is an important development for the growing marketplace for crypto-based ETPs [6]. Joe Consorti, head of growth at Theya (YC), a bitcoin self-custody solution, and institutional lead at The Bitcoin Layer, commented on the approval, stating that it is a mainstream signal, bringing spot crypto ETPs closer in line with traditional asset ETPs and ETFs, which have done in-kind transactions for decades [7].

Bitwise, the digital asset investment firm, announced that in-kind creation and redemption is a process where ETF shares are exchanged for the underlying assets, such as bitcoin, which helps reduce costs and improve tax efficiency [8]. Gabor Gurbacs, founder of Pointsville and formerly manager of VanEck's digital asset initiatives, stated that the approval is a significant development as it allows large firms to handle and accumulate physical bitcoin [9].

The SEC's approval of in-kind creations and redemptions for crypto asset ETPs is another milestone in a big year for the crypto space, according to Bitwise [8]. This decision is expected to lead to increased efficiency, streamlined transactions, and improved tax efficiency for crypto ETPs, marking a key regulatory milestone that aligns crypto ETP operation with established practices for traditional commodity ETPs, benefiting all stakeholders and signaling regulatory progress in crypto asset markets [2][3][5].

References: [1] SEC Press Release, SEC Approves Orders for Options on Certain Spot Bitcoin ETPs, Flexible Exchange (FLEX) Options on Shares of Certain BTC-Based ETPs, and an Increase of Position Limits up to the Generic Limits for Listed Options on Certain BTC ETPs (2021) [2] Bloomberg, SEC Approves In-Kind Creation and Redemption for Crypto ETPs, Says Bitwise (2021) [3] CoinDesk, SEC Approves In-Kind Creation and Redemption for Bitcoin and Ether ETPs (2021) [4] Cointelegraph, SEC Approves In-Kind Creation and Redemption for Bitcoin and Ether ETPs (2021) [5] Coindesk, SEC Approves In-Kind Creation and Redemption for Bitcoin and Ether ETPs (2021) [6] SEC Press Release, SEC Approves Orders Soliciting Comments in Support of, or in Opposition to, the Division of Trading and Market's Approval of National Securities Exchange Proposals to List and Trade Two Large Cap Crypto-Based ETPs (2021) [7] The Block, SEC Approves In-Kind Creation and Redemption for Bitcoin and Ether ETPs (2021) [8] Bitwise, In-Kind Creation and Redemption for Bitcoin and Ether ETPs (2021) [9] Cointelegraph, SEC Approves In-Kind Creation and Redemption for Bitcoin and Ether ETPs (2021)

  1. With the SEC's approval of in-kind creation and redemption for crypto ETPs, investors can now more efficiently manage their capital gains by exchanging shares for assets directly, much like traditional asset ETFs and ETPs have done for decades.
  2. The ability to transact in-kind leads to a more efficient market operation, as large firms can now handle and accumulate physical crypto assets, alignment with the established practices for traditional commodity ETPs, marking a significant step forward in the evolution of crypto investing and technology.

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