Hong Kong Set the Standard as U.S. SEC Approves In-Kind Redemptions for Crypto ETFs
The U.S. Securities and Exchange Commission (SEC) has finally approved in-kind creation and redemption mechanisms for spot bitcoin and ether ETFs—a significant regulatory shift aimed at improving operational efficiency for institutional players. But while the decision is making waves in the U.S., Hong Kong had already embraced this model nearly two years ago.
Back in late 2023, as Hong Kong prepared to launch its first crypto ETFs (which debuted in April 2024), the city’s Securities and Futures Commission (SFC) explicitly permitted in-kind transactions. This allowed ETF issuers to create and redeem shares using bitcoin or ether directly, avoiding cash conversions. The SFC’s early support stemmed from strict requirements around custody and licensed exchange partnerships, which added confidence in the model’s safety.
In contrast, U.S. regulators had taken a more conservative approach. The SEC initially required only cash-based transactions for crypto ETFs approved in early 2024, citing operational and security concerns. That policy attracted criticism from inside the agency. Commissioner Mark Uyeda publicly questioned why crypto ETFs were treated differently from commodity ETFs like gold, which routinely use in-kind processes.
With the SEC now reversing course, institutional investors will benefit from lower friction, reduced costs, and tighter price tracking between ETF shares and the underlying crypto assets. The move also reflects new leadership under SEC Chair Paul Atkins, who has prioritized a more innovation-friendly stance on digital assets.
New Friction: Data Transparency Concerns Emerge
While the approval brings much-needed flexibility to ETF issuers, it raises new challenges around data reporting. Crypto data platform SoSoValue warns that in-kind subscriptions—since they involve digital assets rather than fiat—won’t show up as traditional cash inflows in daily ETF flow statistics. Without clear disclosures separating crypto and fiat transactions, analysts may struggle to track investor sentiment and capital movements accurately.
Market Snapshot
- Bitcoin (BTC): Trading above $117,500, with price action constrained by continued ETF outflows, profit-taking near $118K, and macro headwinds including a strong dollar and hawkish Fed sentiment.
- Ethereum (ETH): Holding steady above $3,700. Institutions increasingly view ETH as a high-conviction asset alongside BTC, noted Bizantine Capital’s March Zheng.
- Gold: Rebounded to $3,334, ending a four-day losing streak ahead of the Fed’s rate decision, as weak U.S. job data fueled expectations for a pause.
- Nikkei 225: Opened flat amid mixed Asia-Pacific market signals. U.S. Commerce Secretary Howard Lutnick confirmed that Trump’s tariff deadlines remain on schedule.
- S&P 500: Pulled back slightly Tuesday, ending a six-day record rally as traders digested earnings reports and awaited the Federal Reserve’s upcoming decision.
