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SEC Approves Physical Settlement for Crypto ETFs, Boosting Market Efficiency

The US Securities and Exchange Commission (SEC) has approved a procedure allowing settlements in physical assets for crypto ETFs, enabling the transfer of cryptocurrencies instead of cash. Previously, all spot Bitcoin and Ethereum ETFs in the US could only issue and redeem shares in cash. Now, they are permitted to use the in-kind model, similar to commodity funds. The in-cash model involves selling Bitcoin upon withdrawal and paying investors in dollars, which can exert downward pressure on the market. In-kind transactions allow direct transfer of cryptocurrencies, reducing such impact. Currently, 6.5% of the existing Bitcoin supply worth $153 billion and 4.7% of Ethereum supply worth $21.5 billion are managed within American spot ETFs. Initially, BlackRock, Fidelity, and other asset managers aimed for approval of the in-kind mechanism with their first Bitcoin ETFs in January 2024, but the SEC initially only permitted cash settlements. "Today marks a new phase in crypto market regulation. This decision will make these products less costly and more efficient," said SEC chairman Paul Atkins. Additionally, SEC has approved listings of funds holding both Bitcoin and Ethereum, permitted trading options on certain Bitcoin ETFs, increased open position limits for these options to 250,000 contracts, and started reviewing applications for two major crypto funds. Join the RBC Crypto forum | Subscribe to the channel.
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AI Analysis

The recent approval by the SEC to allow physical (in-kind) settlements for crypto ETFs represents a significant regulatory milestone. Previously, ETFs could only process transactions in cash, which of...

AI Recommendation

Investors should view this regulatory development as a positive catalyst for the growth and maturity of crypto ETFs. The move to in-kind settlement reduces operational costs and market impact, potenti...

Disclaimer

The AI analysis and recommendations provided are for informational purposes only. Any investment decisions should be made at your own risk. Past performance is not indicative of future results. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions.

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