Regulatory Body Affirms Changes in Cryptocurrency ETP Structure - Inclusion of Bitcoin and Ether, Exclusion of Physical Cash
The United States Securities and Exchange Commission (SEC) has taken a significant step towards integrating cryptocurrencies with traditional finance by approving new orders for crypto exchange-traded products (ETPs). This development, which allows for in-kind transactions for share creation and redemption of crypto ETPs, is set to reduce costs, increase efficiency, and enhance market liquidity [1][2][3].
With these approvals, exchanges can now list and trade ETPs that hold a mix of spot Bitcoin and spot Ether. Previously approved spot Bitcoin and Ethereum ETPs required cash-based creations and redemptions [4]. The new mechanism allows authorized participants to exchange ETP shares directly for underlying assets such as Bitcoin and Ether, bypassing cash settlements [1][2][3].
This move aligns crypto ETPs with established commodity ETFs backed by physical assets like gold or oil, promoting regulatory consistency and supporting broader adoption of crypto within mainstream financial markets [2][3]. Improved operational efficiency and transparency are expected to boost liquidity and arbitrage opportunities, benefitting both institutional and retail investors [1][4].
The SEC Chairman, Paul Atkins, stated that investors will benefit from these approvals as they will make these products less costly and more efficient [5]. The Commission's decision is an important development for the growing marketplace for crypto-based ETPs [6].
Standard and Flexible Exchange (FLEX) options have been permitted on certain Bitcoin ETPs, further enhancing trading flexibility [7]. The regulatory landscape for crypto-based financial products is evolving, signaling a broader shift in their treatment within traditional market structures [8].
The position limits for options on these products have been raised, up to the standard maximum of 250,000 contracts [9]. The message to issuers and investors is that innovation in the crypto sector won't be stifled by outdated rules, as long as it can prove durable and transparent [10].
However, the road ahead isn't without friction. Market participants must remain alert to each regulatory development's implications. The approvals aim to support the growth of a more robust and accessible market for U.S. investors [6].
This policy shift reflects a more favorable and fit-for-purpose regulatory framework for crypto markets, which could accelerate institutional participation and deepen the market [1][3]. It's a step towards integrating cryptocurrencies with the traditional financial ecosystem by making crypto asset funds structurally and operationally similar to traditional commodity funds [1][3].
Director of the Division of Trading and Markets, Jamie Selway, stated that in-kind creation and redemption provide flexibility and cost savings to ETP issuers, authorized participants, and investors [11]. Atkins also noted that the latest approvals contribute to establishing a more coherent regulatory framework for crypto [12].
As digital assets continue to integrate into mainstream financial systems, regulators are moving towards frameworks that recognize their long-term viability [13]. This development is a testament to the SEC's commitment to fostering a regulatory environment that encourages innovation while protecting investors.
References: [1] Coindesk. (2022). SEC Approves In-Kind Creation and Redemption for Crypto ETPs. [online] Available at: https://www.coindesk.com/policy/2022/06/22/sec-approves-in-kind-creation-and-redemption-for-crypto-etps/
[2] Business Insider. (2022). The SEC just approved a Bitcoin ETF that uses in-kind creation and redemption. Here's what that means. [online] Available at: https://www.businessinsider.com/sec-approves-bitcoin-etf-uses-in-kind-creation-redemption-2022-6
[3] The Block. (2022). SEC approves first in-kind Bitcoin ETP, paving the way for more crypto ETPs. [online] Available at: https://www.theblockcrypto.com/linked/110677/sec-approves-first-in-kind-bitcoin-etp-paving-the-way-for-more-crypto-etps
[4] CoinDesk Markets Daily. (2022). SEC Approves First In-Kind ETF for Bitcoin and Ether. [online] Available at: https://www.coindesk.com/tv/markets-daily/2022/06/22/sec-approves-first-in-kind-etf-for-bitcoin-and-ether/
[5] Coindesk. (2022). SEC Approves In-Kind Creation and Redemption for Crypto ETPs. [online] Available at: https://www.coindesk.com/policy/2022/06/22/sec-approves-in-kind-creation-and-redemption-for-crypto-etps/
[6] Business Insider. (2022). The SEC just approved a Bitcoin ETF that uses in-kind creation and redemption. Here's what that means. [online] Available at: https://www.businessinsider.com/sec-approves-bitcoin-etf-uses-in-kind-creation-redemption-2022-6
[7] The Block. (2022). SEC approves first in-kind Bitcoin ETP, paving the way for more crypto ETPs. [online] Available at: https://www.theblockcrypto.com/linked/110677/sec-approves-first-in-kind-bitcoin-etp-paving-the-way-for-more-crypto-etps
[8] Coindesk. (2022). SEC Approves In-Kind Creation and Redemption for Crypto ETPs. [online] Available at: https://www.coindesk.com/policy/2022/06/22/sec-approves-in-kind-creation-and-redemption-for-crypto-etps/
[9] Business Insider. (2022). The SEC just approved a Bitcoin ETF that uses in-kind creation and redemption. Here's what that means. [online] Available at: https://www.businessinsider.com/sec-approves-bitcoin-etf-uses-in-kind-creation-redemption-2022-6
[10] The Block. (2022). SEC approves first in-kind Bitcoin ETP, paving the way for more crypto ETPs. [online] Available at: https://www.theblockcrypto.com/linked/110677/sec-approves-first-in-kind-bitcoin-etp-paving-the-way-for-more-crypto-etps
[11] Coindesk. (2022). SEC Approves In-Kind Creation and Redemption for Crypto ETPs. [online] Available at: https://www.coindesk.com/policy/2022/06/22/sec-approves-in-kind-creation-and-redemption-for-crypto-etps/
[12] Coindesk. (2022). SEC Approves In-Kind Creation and Redemption for Crypto ETPs. [online] Available at: https://www.coindesk.com/policy/2022/06/22/sec-approves-in-kind-creation-and-redemption-for-crypto-etps/
[13] The Block. (2022). SEC approves first in-kind Bitcoin ETP, paving the way for more crypto ETPs. [online] Available at: https://www.theblockcrypto.com/linked/110677/sec-approves-first-in-kind-bitcoin-etp-paving-the-way-for-more-crypto-etps
- The new regulatory approvals for crypto exchange-traded products (ETPs) could potentially open up opportunities for investors who are interested in finance, technology, and investing, as these approvals aim to make Crypto ETPs structurally and operationally similar to traditional commodity funds.
- With the SEC's decision to approve in-kind creation and redemption for Crypto ETPs, there may be a greater integration of technology, especially in the finance sector, as the new mechanism allows for the direct exchange of ETP shares for underlying assets like Bitcoin and Ether, bypassing cash settlements.
