The U.S. Securities and Exchange Commission’s recent regulatory shifts have marked a pivotal evolution in the cryptocurrency exchange-traded fund (ETF) landscape, eliminating a longstanding barrier to broader adoption. On July 29, 2025, the SEC finalized a rule change allowing in-kind creation and redemption mechanisms for crypto ETFs, enabling market makers to directly transfer assets such as Bitcoin or Ether instead of relying on cash conversions [1]. This adjustment, confirmed in a July 29 order, aligns crypto ETFs with commodity-based funds and addresses inefficiencies that previously inflated costs and delayed settlements [1]. Paul Atkins, the SEC chair, emphasized the move’s intent to harmonize crypto ETF operations with established financial instruments [1].
The in-kind process enhances pricing accuracy by reducing arbitrage gaps between ETF shares and underlying crypto assets, a critical factor for maintaining market integrity [1]. Prior cash-based mechanisms introduced friction, as large financial firms had to convert assets into cash and back again, creating latency and higher transaction costs [1]. Analysts like MartyParty, a crypto commentator, labeled the rule change as “the final holdup” for ETF growth, noting its potential to attract institutional investors seeking cost-efficient and liquid exposure to crypto markets [1]. The SEC also highlighted improved tax efficiency and operational simplicity for issuers, further broadening the appeal of crypto ETFs [1].
While the rule change signals regulatory progress, the SEC continues to enforce strict oversight. On July 20, the agency announced the removal of the “cash rule” requiring custodians to hold digital assets instead of cash collateral, another step toward crypto ETF viability [1]. However, enforcement actions remain active, as seen in the July 29 filing of a $650 million charge against NovaTech for alleged fraud targeting investors [2]. The SEC also delayed its decision on Truth Social’s Bitcoin ETF application until September 18, underscoring the agency’s cautious approach to approvals [5].
Market participants are responding with new initiatives. Trump Media filed for a “Crypto Blue Chip ETF” to mirror traditional blue-chip indices, while CEA Industries and 10X Capital secured a $500 million private placement, including $100 million in cryptocurrency, to establish the largest publicly listed BNB treasury company [4][6]. These developments reflect growing institutional confidence, despite internal debates within the SEC. A Reddit thread revealed that the Bitcoin ETF approval was not unanimous, with some agency members opposing the decision, highlighting tensions between innovation and investor protection [7].
The regulatory environment remains dynamic. Alongside the in-kind rule, the SEC approved pending orders for Bitcoin ETF options and mixed Bitcoin-Ether products [1]. Julius Baer’s Carsten Menke noted the muted market reaction to spot Bitcoin ETF approvals as a positive sign for institutional adoption, citing reduced volatility as an indicator of maturing market infrastructure [3].
Source:
[1] SEC Scraps Cash Rule and Opens the Door for Crypto ETFs,[https://blockonomi.com/sec-scraps-cash-rule-and-opens-the-door-for-crypto-etfs] [2] A crypto trader is facing a $650 million charge for defrauding investors, [https://qz.com/gateway/sec-charges-crypto-company-with-650-million-1851619909] [3] Podcasts, [https://www.juliusbaer.com/en/insights/podcasts] [4] CEA Industries And 10X Capital, [https://www.barchart.com/story/news/33682541/cea-industries-and-10x-capital-with-the-support-of-yzi-labs-announce-500-million-private-placement-to-establish-largest-publicly-listed-bnb-treasury-company-in-the-world-nasdaqvape] [5] SEC Delays Decision on Truth Social’s Bitcoin ETF, [https://www.tokenpost.com/news/regulation/16485] [7] Anti Bitcoin : r/CryptoReality, [https://www.reddit.com/r/CryptoReality/comments/1mc9oc4/anti_bitcoin/].
