Bitcoin and Ethereum Major Signal: SEC Approves Physical Creation and Redemption of Crypto Assets ETP

The U.S. Securities and Exchange Commission (SEC) recently issued a significant update, approving the physical creation and redemption of exchange-traded products (ETPs) for Crypto Assets. This decision allows authorized representatives to exchange shares directly for the underlying Crypto Assets rather than cash. This move not only marks a significant shift by the U.S. securities regulator in the Crypto Assets space but also heralds a more cost-effective and efficient operating model for Bitcoin (BTC) and Ethereum (ETH) funds, while also providing new possibilities for the approval process of future altcoin products.

1. SEC Approves Creation and Redemption of Physical: A New Era for Crypto ETPs

(Source: SEC)

Paul Atkins, the chairman of the SEC, stated in a statement: "This is a new day for the SEC, and my top priority as chairman is to develop a regulatory framework suitable for the Crypto Assets market." He emphasized that the new rules will make crypto ETPs "cheaper and more efficient."

Jamie Selway, the Director of the Division of Trading and Markets at the SEC, stated: "The creation and redemption of physical assets provide flexibility and cost savings for ETP issuers, authorized participants, and investors, thereby enhancing market efficiency."

The significance of physical creation and redemption: In the context of already approved spot crypto assets exchange-traded funds (ETFs), physical redemption allows investors to obtain underlying assets such as Bitcoin or Ether when they redeem shares, instead of cash. This method is generally considered more efficient, as it allows the fund's authorized participants to avoid selling assets in the market, potentially reducing transaction costs.

Eliminating Legal Barriers: Physical Crypto Assets ETFs will eliminate another legal barrier for Web3. Theoretically, crypto assets are considered commodities, and most types of commodities possess this physical functionality. This rule change has received widespread positive feedback.

Accelerated Approval Process: The committee also mentioned the accelerated approval process, which may help with the physical redemption of altcoin products.

It should be clear that the SEC has not uniformly approved any form of physical cryptocurrency ETF. Instead, it has approved three specific proposals, both involving Bitcoin and Ethereum ETFs.

2. IBIT Options Trading Holding Limit Increased: Triggering Bitcoin ETF Based on Options

In addition to physical creation and redemption, the SEC has provided another benefit for cryptocurrency ETFs. ETF options trading is relatively new, especially for alts, but the commission has increased the holding limit for IBIT options tenfold. This could trigger an "explosive growth of options-based Bitcoin ETFs." ETF issuers are already ecstatic about the new market opportunities.

3. Changes in the Regulatory Environment and Market Impact

Since President Trump took office, the United States has seen a wave of regulatory support for encryption. However, in recent months, a special demand has been on the rise: physical ETFs. Today, the SEC announced the final approval of this request, and Chairman Paul Atkins made a statement regarding this matter.

This represents a significant breakthrough in the market space. When the first Bitcoin ETF was approved under Gary Gensler's leadership, his goal was to isolate these new products from potential illegal BTC sources. This means forcing each issuer to buy the assets, and then investors purchase the financial instruments. In a physical model, buyers can carry the relevant tokens to the issuer to directly obtain the products. This process describes physical creation, but conversely, it also applies to redemption. Investors still need to conduct business through licensed issuers, but these issuers do not need to buy all the tokens themselves.

In other words, despite recent delays in the review process, the SEC clearly supports the liberalization of crypto ETFs. The creation and redemption of physical assets will place these products on the same level as any other commodity-based products. Currently, the trading volume of cryptocurrency ETFs is already high, but these new measures may further boost this momentum.

Conclusion:

The SEC's approval of the physical creation and redemption of cryptocurrency ETPs is another important milestone for the cryptocurrency market's move towards mainstream finance. This policy will not only enhance the efficiency and appeal of Bitcoin and Ether ETFs but also pave the way for more cryptocurrency assets to be ETF-ified in the future. As the regulatory environment becomes increasingly clear, the cryptocurrency market is expected to attract more institutional capital and participation from traditional investors.