U.S. Securities and Exchange Commission (SEC) voted to approve orders permitting in-kind creations and redemptions for cryptocurrency exchange-traded products (ETPs), specifically for spot Bitcoin and Ethereum ETFs. This marks a significant shift from the previous cash-only model, allowing authorized participants to exchange ETF shares directly for the underlying crypto assets (Bitcoin or Ethereum) instead of cash.
This change is expected to enhance efficiency by reducing transaction costs, minimizing price slippage, and improving price tracking, aligning crypto ETPs with traditional commodity-based ETPs like gold or oil funds. SEC Chairman Paul Atkins stated that the approvals aim to create a “fit-for-purpose regulatory framework for crypto asset markets,” making these products less costly and more efficient for issuers, authorized participants, and investors.
Jamie Selway, Director of the Division of Trading and Markets, highlighted that in-kind mechanisms provide flexibility and cost savings, fostering a more efficient market. The SEC also approved other crypto-related products, including mixed Bitcoin and Ethereum ETPs, options on spot Bitcoin ETPs, Flexible Exchange (FLEX) options on certain Bitcoin-based ETPs, and increased position limits for options on specific Bitcoin ETPs (up to 250,000 contracts).
Analysts, such as James Seyffart, suggest this could pave the way for future altcoin ETFs with in-kind models from the outset. The decision reflects a broader pro-crypto policy shift, partly driven by the Trump administration and supported by figures like SEC Commissioner Hester Peirce, who has advocated for such reforms.
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The approval legitimizes Bitcoin and Ethereum as investable assets, likely increasing institutional and retail participation. Higher liquidity in these cryptocurrencies can stabilize their value, making them more reliable for cross-border transactions. Greater market efficiency from in-kind mechanisms (reduced transaction costs and price slippage) could translate to more stable crypto prices, supporting their use in payments.
The infrastructure supporting in-kind ETPs, such as custody solutions and authorized participant networks, strengthens the ecosystem for crypto transactions. This could enhance the reliability of blockchain networks for cross-border payments. Regulated ETPs may encourage banks and payment providers to integrate crypto-based solutions, bridging traditional finance and blockchain networks.
The SEC’s move signals a pro-crypto regulatory shift in the U.S., potentially encouraging other countries to adopt similar frameworks. Harmonized regulations could reduce barriers to using crypto for cross-border payments, as compliance becomes more standardized. Increased trust in regulated crypto products could accelerate adoption by global financial institutions, facilitating cross-border payment systems.
The approval of mixed Bitcoin-Ethereum ETPs and the possibility of future altcoin ETFs suggest growing acceptance of diverse cryptocurrencies. Altcoins like XRP or Stellar, designed specifically for cross-border payments, could benefit from similar regulatory advancements, enhancing their use cases.
Benefits for Cross-Border Payments
Cryptocurrencies like Bitcoin and Ethereum can bypass intermediaries (e.g., correspondent banks) in cross-border payments, reducing fees. In-kind ETPs lower transaction costs within the investment ecosystem, which could indirectly support cheaper crypto-based payment networks by improving market efficiency. Traditional cross-border transfers via SWIFT can cost 3-7% per transaction, while crypto-based solutions often cost less than 1%.
Blockchain-based payments settle in minutes or seconds compared to days for traditional systems. The SEC’s approval strengthens the infrastructure for crypto, potentially encouraging faster adoption of scalable solutions like Ethereum’s rollups or Bitcoin’s Lightning Network for cross-border use. Enhanced liquidity from ETPs ensures smoother conversions between crypto and fiat, reducing delays in payment processing.
Crypto ETPs increase mainstream exposure to cryptocurrencies, encouraging their use in regions with limited banking infrastructure. Cross-border payments via crypto can serve unbanked populations, enabling peer-to-peer transfers without traditional financial intermediaries. Migrant workers sending remittances to developing countries could use Bitcoin or Ethereum for faster, cheaper transfers.
In-kind ETPs align crypto prices more closely with market values, reducing volatility in conversion rates. This stability benefits cross-border payments, where fluctuating exchange rates can erode value. Stablecoins (potentially supported by future ETPs) could further minimize volatility, making crypto a reliable medium for international transfers.
The SEC’s approval could spur innovation in crypto-based payment platforms, as firms leverage the growing acceptance of Bitcoin and Ethereum. For instance, payment processors like Ripple or Stellar could integrate with ETF-related infrastructure, enhancing cross-border efficiency. Mixed Bitcoin-Ethereum ETPs may inspire hybrid payment solutions combining the strengths of both blockchains.
Lower costs, faster settlements, and increased accessibility make crypto a compelling alternative to traditional systems. As regulatory frameworks evolve and infrastructure improves, the impact on cross-border payments could grow, potentially transforming global financial flows.