Hester Peirce, Commissioner at the US Securities and Exchange Commission (SEC), suggested this week that in-kind creation and physical redemption mechanisms for crypto exchange-traded funds (ETFs) may be on the horizon. Speaking at a Bitcoin Policy Institute panel on Wednesday, the Republican Commissioner addressed growing industry interest in shifting away from the current cash-based model.
SEC Hester Pierce: In-Kind Redemptions for Crypto ETFs Soon?
When asked whether the SEC would soon permit in-kind redemptions, Peirce noted that related proposals are currently under review.
“These filings are going through the process now,” she said, adding, “I think that’s something that’s certainly on the horizon. I can’t prejudge the outcome, but we know there’s strong interest.”
In-kind or physical redemption is a structure wherein firms exchange the underlying asset (in this case, bitcoin) directly rather than converting it to cash.
Major firms, including BlackRock, have long pushed for this model, arguing it offers greater efficiency. Back in January, Nasdaq submitted a Form 19b-4 on BlackRock’s behalf to request approval for in-kind processes. Other firms have since followed suit.
Before the SEC approved spot bitcoin ETFs over a year ago, issuers debated the best method for handling redemptions. The SEC ultimately favored a cash model, which required assets like bitcoin to be liquidated before returning proceeds to investors. Critics, including Bloomberg Intelligence ETF analyst James Seyffart, argued that allowing in-kind transactions would improve trading efficiency and reduce costs.
The broader regulatory environment has evolved significantly. Under the Trump administration, the SEC maintained a more crypto-friendly stance. Since then, firms have ramped up efforts to gain approval for a range of crypto-based ETFs, covering tokens like XRP, Solana (SOL), Dogecoin (DOGE), and more.
One of the newer entrants to this space is the Canary PENGU ETF, backed by the utility token of Pudgy Penguins NFTs. The application was filed with the SEC via Cboe. Meanwhile, the agency has delayed its decision on Grayscale’s spot Dogecoin ETF, originally submitted in March, along with other altcoin ETF proposals.
Further developments came on June 13, when several leading asset managers, namely, 21Shares, Franklin Templeton, and Grayscale, submitted amended S-1/A filings for their proposed spot Solana ETFs. These amendments responded to SEC inquiries about in-kind redemption mechanisms. Fidelity has also filed its own S-1 to launch a spot Solana ETF.
However, Seyffart and Bloomberg’s senior ETF analyst Eric Balchunas have both recently raised their expectations, now placing the odds of SEC approval for most spot crypto ETFs at 90% or higher.
