SEC’s Game-Changing Move: What the Latest Ruling Means for Crypto ETFs

In a significant development for the crypto industry, the US Securities and Exchange Commission (SEC) has given the green light to the creation and redemption of shares for all spot-bitcoin and Ethereum Exchange-Traded Funds (ETFs). But what does this mean, exactly? Let’s dive in and explore the implications of this ruling.

The Ruling: A Breakdown

The SEC’s decision applies to all approved spot-bitcoin and Ethereum ETFs, including those issued by major players like Blackrock, Fidelity, ARK Invest, and Vaneck. The ruling allows authorized participants to create and redeem ETF shares using the underlying digital assets, such as Bitcoin or Ethereum, rather than cash. This change is expected to make the process more efficient, reducing the need for cash and minimizing taxable events.

Key Takeaways

• The SEC has approved the creation and redemption of shares for all spot-bitcoin and Ethereum ETFs.
• Major exchanges, including Nasdaq, Nyse Arca, and CBOE BZX, have received accelerated permits to facilitate the new structure.
• Analysts expect outstanding altcoin ETF applications to incorporate the new creation and redemption mechanism from the start.

The Significance of Creation and Redemption

So, why is this ruling such a big deal? The creation and redemption process allows authorized participants to exchange ETF shares for the underlying asset, rather than cash. This model is considered more operational, as it reduces dependence on cash, minimizes taxable events, and reduces transaction costs. It also makes it easier to add or remove ETF shares based on demand, helping the fund’s price to remain closer to the actual value of the crypto assets held.

Expert Insights

According to Jamie Selway, director of the SEC’s trading and markets division, the change in guidelines offers “flexibility and cost savings” to ETF issuers, market participants, and ultimately, the wider market. Bloomberg ETF analyst James Seyffart has long advocated for this change, arguing that it will simplify the ETF process and reduce the number of steps and intermediaries involved.

What’s Next?

Now that the creation and redemption mechanism has been approved, ETF issuers will implement the updated mechanisms in the coming weeks. Exchanges that have received accelerated permits are preparing to facilitate the new structure. Analysts expect this change to pave the way for similar framework conditions in pending ETF applications for altcoins.

A Shift in Regulatory Tone

The move marks a significant departure from the SEC’s earlier stance under former chairman Gary Gensler, which emphasized cash-based solutions. The appointment of Paul Atkins as SEC chairman earlier this year signaled a shift towards a more market-friendly approach. Atkins has expressed support for a “fit-for-purpose” approach for crypto, and the recent announcement is seen as a major step in that direction.

SEC commissioner Hester Peirce, known for her pro-innovation stance, has played a central role in shaping the new regulatory landscape. As the head of the SEC’s crypto task force, she has directed efforts to lift restrictive rules and implement practical reforms, including the expansion of redemption options to benefit investors.