SEC in-kind approval changes Bitcoin ETF mechanics

Regulatory shifts in ETF structures

The SEC approved orders on July 29, 2025, to permit in-kind creations and redemptions for crypto asset exchange-traded products. This shift allows authorized participants to deliver a basket of cryptocurrency to a trust in exchange for ETF shares. Before this ruling, the SEC required cash-only transactions for spot Bitcoin and ether ETPs. The cash-only structure forced ETP issuers to buy or sell assets on the open market to meet redemption needs, which meant the ETP bore all transaction costs. In-kind models bring crypto products closer to the structure of commodity ETFs like gold. When authorized participants deliver Bitcoin to a trust in exchange for ETF shares, they remove the need for the fund to buy assets on the open market, which reduces the slippage and transaction costs that previously burdened investors. SEC Chairman Paul S. Atkins described the change as part of building a fit-for-purpose regulatory framework for crypto asset markets. In May 2025, SEC staff withdrew guidance that discouraged broker-dealers from engaging in cryptoasset activities. This, alongside the Federal Reserve withdrawing its 2022 supervisory guidance in April 2025, helped level the playing field for banks participating as authorized participants. The SEC anticipates that allowing in-kind creation and redemption will provide flexibility and cost savings to issuers, authorized participants, and investors. The SEC decision makes crypto products more efficient.

The role of authorized participants

Authorized participants manage the creation and redemption of shares in large blocks known as creation units. When the ETF price trades at a premium to its net asset value, APs buy the underlying asset and exchange it for new shares. This arbitrage process keeps the market price close to the value of the holdings. For instance, BlackRock’s iShares Bitcoin Trust (IBIT) uses Coinbase Custody Trust Company to hold its Bitcoin. On January 12, 2026, BlackRock’s ETF saw a redemption of approximately 2,791 BTC, valued at over $300 million, which moved from the custodian to Coinbase Prime. These redemptions send Bitcoin back into the market. Does this constant movement of assets between custodians and exchanges create long-term volatility for the underlying price? Authorized participants function as market makers to provide liquidity by posting buy and sell quotes for the ETF shares. These entities are typically large institutional investors or market makers. BlackRock’s IBIT had about a dozen APs by 2025, including seven major global banks like JPMorgan, Goldman Sachs, and Citigroup. Grayscale’s GBTC continues to lose assets as investors move to lower-fee alternatives.

Market demand and tax implications

US spot Bitcoin ETFs recorded $998.95 million in daily net inflows on September 21, 2026. Total net assets across these funds reached $110.14 billion. This amount equals 6.30% of the total Bitcoin market capitalization. IBIT remains the largest fund with $68.29 billion in assets, while Fidelity’s FBTC holds $15.51 billion. Another fund, BITB, saw $21.56 million in daily net inflow, and MSBT saw $61.67 million. IBIT recorded a daily net inflow of $381.37 million on the same day. Grayscale’s GBTC showed a daily inflow of $3.34 million. Cumulative net inflows into US spot Bitcoin ETFs reached approximately $56.16 billion. This figure is the net amount of capital that entered the funds since they launched, after deducting outflows. About half of the current value in these funds comes from price gains on Bitcoin itself rather than new money entering. IBIT alone held $68.29 billion of the group’s $110.14 billion in net assets. On September 21, the total ETF trading value reached $4.57 billion. You should check your annual grantor trust tax information statement to find your share of gains from expense-related sales. The trust sells Bitcoin to pay management fees, which the IRS treats as if you sold your own Bitcoin.