SEC Approves In-Kind Crypto ETPs: Market Game-Changer

The Ripple Effect

— 3 min read
SEC Approves In-Kind Crypto ETPs: Market Game-Changer
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content

The Securities and Exchange Commission made history today by approving in-kind creations and redemptions for crypto exchange-traded products, marking a dramatic shift toward mainstream institutional adoption. This groundbreaking decision eliminates the cash-only restrictions that previously limited crypto ETPs, bringing them in line with traditional commodity-based funds and potentially saving investors millions in transaction costs.

A New Era Under Chairman Atkins

The SEC’s unanimous approval represents a complete reversal from the Gensler administration’s restrictive approach to crypto regulation. Under new Chairman Paul Atkins, the commission voted to permit authorized participants to create and redeem bitcoin and ether ETP shares using actual cryptocurrency rather than cash equivalents. “It’s a new day at the SEC,” Atkins declared, emphasizing his commitment to developing “fit-for-purpose regulatory framework for crypto asset markets.”

This regulatory shift extends beyond simple operational changes. The commission simultaneously approved several groundbreaking products, including the first mixed bitcoin-ether ETP, options trading on spot bitcoin ETPs, and increased position limits up to 250,000 contracts for bitcoin-based options. These approvals signal a merit-neutral approach that treats crypto assets as legitimate investment vehicles deserving equal regulatory treatment.

Market Efficiency and Cost Savings

The transition to in-kind transactions addresses a fundamental inefficiency that has plagued crypto ETPs since their inception. Previously, authorized participants had to convert cryptocurrency to cash before creating or redeeming shares, adding layers of transaction costs and potential tracking errors. Jamie Selway, Director of Trading and Markets, noted that in-kind processes will provide “flexibility and cost savings to ETP issuers, authorized participants, and investors, resulting in a more efficient market.”

This efficiency gain translates directly to improved performance for retail investors. Reduced creation and redemption costs typically result in tighter bid-ask spreads and better tracking of underlying asset prices. For institutional investors managing large positions, the ability to transact directly in cryptocurrency eliminates settlement delays and reduces counterparty risk.

Strategic Implications for XRP and Ripple

While today’s approvals focus on bitcoin and ether products, the regulatory precedent creates significant opportunities for XRP-based investment vehicles. Ripple’s ongoing legal clarity, combined with the SEC’s new crypto-friendly stance, positions XRP as a prime candidate for future ETP listings. The company’s institutional partnerships and regulatory compliance efforts align perfectly with the commission’s merit-neutral approach.

The in-kind framework particularly benefits XRP’s liquidity infrastructure. Ripple’s On-Demand Liquidity service relies on efficient market-making mechanisms that mirror the authorized participant model used in ETPs. As institutional demand for crypto exposure grows, XRP’s role as a bridge currency for cross-border payments could drive significant ETP interest from asset managers seeking diversified crypto exposure.

Moreover, Ripple’s RLUSD stablecoin launch, combined with the recent GENIUS Act framework, creates a comprehensive ecosystem for regulated crypto products. An XRP-based ETP utilizing in-kind mechanisms could leverage both XRP’s native liquidity and RLUSD’s stability, offering institutional investors a unique value proposition in the rapidly expanding crypto ETP market.

Bottom Line

The SEC’s approval of in-kind crypto ETPs represents a watershed moment for digital asset adoption, eliminating artificial barriers that limited institutional participation. With Chairman Atkins leading a merit-neutral regulatory approach, crypto assets are finally receiving the same treatment as traditional commodities. While immediate benefits flow to bitcoin and ether products, the regulatory framework opens doors for next-generation crypto assets like XRP to access mainstream investment channels, potentially accelerating the entire sector’s institutional adoption timeline.

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