The US Securities and Exchange Commission (SEC) is seeking public comments on a proposal that would allow Bitcoin and Ether exchange-traded funds (ETFs) to conduct in-kind redemptions using actual cryptocurrencies instead of cash. This move, outlined in a February 10 filing, is seen as a way to improve tax efficiency and to enhance the attractiveness of spot crypto ETFs, particularly for institutional investors. The Cboe BZX Exchange recently submitted an amended application for ARK 21Shares Bitcoin ETF (ARKB) and 21Shares Core Ethereum ETF (CETH) to enable these in-kind transactions. Authorized traders currently create ETF shares through cash or asset exchanges, while redemptions typically involve cash. In-kind redemptions, however, would allow investors to exchange ETF shares for a basket of underlying assets, thereby minimizing tax implications. This shift could lead to a broader adoption of Bitcoin and Ethereum by institutional players. The SEC's outreach comes amid a more favorable regulatory landscape as the US recently experienced a shift in political leadership, potentially easing constraints around cryptocurrency oversight. Additionally, there has been a significant increase in ETF proposals involving altcoins and diversified crypto index ETFs as demand in the sector continues to grow.

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