In a move that’s sending ripples through the crypto community, the U.S. Securities and Exchange Commission (SEC) announced Wednesday that it will allow in-kind redemptions for bitcoin and ether exchange-traded funds (ETFs). This development is aimed at enhancing efficiency by circumventing fiat conversions, but for those in the know, it’s a page borrowed from Hong Kong’s playbook—one penned nearly two years ago.
A Tale of Two Cities: Hong Kong vs. U.S.
The SEC’s nod to in-kind redemptions may feel like a groundbreaking shift in the U.S., but over in Hong Kong, it’s old news. Back in late 2023, the city’s Securities and Futures Commission (SFC) laid the groundwork for this practice during the nascent stages of crypto ETFs, which officially launched in April 2024. The SFC’s proactive stance, requiring ETF issuers to collaborate with licensed local crypto exchanges and use secure custody solutions, set a precedent that the U.S. is only now catching up to.
In contrast, U.S. regulators have long grappled with concerns surrounding custody, anti-money laundering, and potential market manipulation. Unlike Hong Kong, where the debate over Ether’s status as a security was minimal, the U.S. experienced significant hand-wringing. According to Mark Uyeda, an SEC Commissioner who has been vocal about the agency’s cautious approach, the insistence on cash-only redemptions for crypto ETFs diverged starkly from standard practices seen in commodity-based ETFs, such as those backed by gold. For a deeper dive into the regulatory implications, see our coverage of the SEC’s latest guidance.
“The SEC’s failure to adequately justify this deviation has set a worrying precedent,” Uyeda noted during the approval of spot bitcoin ETFs in January 2024. His comments underscored the internal discord and policy drift within the U.S. regulatory framework—issues that Hong Kong, with its clear and cohesive strategy, managed to sidestep entirely.
Tracking Challenges and Market Ramifications
Here’s the catch: While in-kind redemptions streamline certain processes, they introduce complexities in others—specifically, in tracking fund flows. SoSoValue, a crypto data aggregator, cautions that subscriptions of physical bitcoin don’t generate cash inflows for ETFs, complicating daily net inflow statistics. Despite efforts to develop workarounds, the challenge remains unresolved, posing a significant hurdle for accurately gauging investor sentiment.
Yet, the broader implications for the crypto market are undeniable. Bitcoin is currently trading above $117,500, although momentum appears tepid amid continued ETF outflows and macroeconomic headwinds. Similarly, Ethereum has been holding steady above $3,700, with institutions increasingly viewing Ether as a formidable asymmetric bet alongside bitcoin. March Zheng, General Partner of Bizantine Capital, remarked that Ethereum’s resilience since its inception reinforces its status as “the second most battle-tested network.” This follows a pattern of institutional adoption, which we detailed in Bitcoin ETFs Post Second-Biggest Day Ever: Why It Matters.
Meanwhile, gold has rebounded to $3,334, snapping a four-day losing streak, as traders anticipate steady rates despite weak U.S. job data. However, the S&P 500 closed lower Tuesday, ending a six-day record streak as investors weigh earnings and the looming Federal Reserve rate decision.
Looking Ahead: Unresolved Questions and Future Trends
As the dust settles around the SEC’s latest decision, one can’t help but wonder about the long-term impacts on the crypto landscape. While Hong Kong’s early embrace of in-kind redemptions offers a roadmap, the U.S. faces its own unique set of challenges and uncertainties. Will the newfound efficiency in ETF redemptions spark increased institutional participation and, in turn, buoy the market? Or will the tracking complexities deter investors who rely on robust flow metrics?
These questions linger, highlighting the dynamic and ever-evolving nature of the crypto industry. As the SEC continues to refine its regulatory approach, market participants will be watching closely, eager to adapt and capitalize on emerging opportunities in this fast-paced arena. And who knows—perhaps the lessons learned from Hong Kong will continue to inform and influence U.S. policy, charting a course for greater global harmonization in the world of digital assets.
Source
This article is based on: Asia Morning Briefing: SEC’s In-Kind BTC, ETH ETF Redemption Shift Happened Years Ago in Hong Kong
Further Reading
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
