Cboe BZX Exchange has submitted a proposal to the U.S. Securities and Exchange Commission (SEC) seeking approval for in-kind redemptions and creations for Invesco Galaxy’s Bitcoin and Ethereum ETFs. If approved, this change would allow institutional participants to exchange Bitcoin or Ethereum directly for ETF shares without converting assets into cash.

This model could streamline ETF operations by reducing trading costs, narrowing bid/ask spreads, and minimizing broker commissions. While institutions could benefit from this new mechanism, retail investors would still be required to use the traditional cash-based model when buying or redeeming ETF shares.

A Step Toward Greater Efficiency

The proposal follows similar efforts by other major ETF issuers, including BlackRock, which previously lobbied for in-kind transactions. Analysts suggest that this change would improve ETF market efficiency by reducing intermediaries in the process. Bloomberg ETF analyst James Seyffart previously commented that in-kind transactions should have been allowed from the start, arguing that regulatory opposition delayed this evolution.

However, despite progress in the crypto ETF space, the sector faces challenges. Bitcoin ETFs recently saw outflows of $371 million over seven consecutive days, while Ethereum ETFs lost $21.57 million in a five-day streak. These trends highlight ongoing market volatility and investor hesitation despite growing institutional adoption.

The SEC’s decision on the rule change remains uncertain, but if approved, it could set a new precedent for crypto ETFs in the U.S., making them more attractive to institutional investors. As the market awaits regulatory clarity, traders should consider how these developments could influence ETF liquidity and pricing dynamics.

This article is for informational purposes only and does not constitute investment advice.