The Cboe BZX Exchange has submitted a proposal to the US Securities and Exchange Commission (SEC) to allow physical creation and redemption of shares for Invesco Galaxy’s spot Bitcoin (BTC) and Ethereum (ETH) ETFs as reported by PANews. This move would allow institutional investors to exchange ETF shares directly for Bitcoin or Ethereum, and this would bypass the entire cash transaction process.
Benefits of In-Kind Creation and Redemption
This physical redemption model, known as in-kind creation and redemption, offers several advantages. By eliminating the need to sell the underlying cryptocurrencies to create or redeem exchange-traded funds shares, it reduces bid-ask spreads and avoids any additional brokerage commissions.
This approach streamlines trading processes and could make the exchange-traded funds more efficient for the big players. However, institutional investors, being the way they are, will still rely on the traditional cash-based model when buying or redeeming ETF shares.
Impact on Liquidity and Market Efficiency
The filing highlights that this move is designed to increase liquidity and reduce the costs needed for authorized participants, who play a critical role in maintaining the ETF’s price stability by creating and redeeming shares as needed.
The proposal marks a significant step towards bridging traditional markets with cryptocurrency assets.
As a part of the regulatory process, the SEC has opened a public comment period to gather feedbacks from the stakeholders before they make their final decision.
Community members think that this development could work in their favor and make way for broader adoption of cryptocurrency ETFs by improving their operational efficiency and aligning them close with the traditional equity ETFs.
If approved, this change would represent another step in integrating digital assets into mainstream financial systems, further legitimizing cryptocurrencies as investable assets. Investors and market participants are now closely watching the SEC’s decision, which could have far-fetched implications for the future of crypto-based ETFs in the US.
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