SEC Brings Crypto ETPs in Line with Conventional Markets, Opening Doors for Institutional Investment

The U.S. Securities and Exchange Commission (SEC) has made a notable move to simplify crypto investment products, granting approval for in-kind creation and redemption processes for exchange-traded products (ETPs) that track

and . Announced on July 29, this decision brings crypto ETPs in line with their commodity and equity counterparts, enabling authorized participants to swap shares directly for the underlying digital assets rather than cash. SEC Chairman Paul S. Atkins highlighted that this change would lower costs and increase efficiency, helping to build a more robust and active market for investors. This policy update comes after years of cash-only rules for crypto ETPs, which experts say led to inefficiencies and limited institutional involvement.

The SEC’s approval also includes raising the position limits for Bitcoin ETF options from 25,000 to 250,000 contracts and introducing flexible “FLEX options.” These updates are designed to enhance liquidity and support advanced institutional strategies like hedging and leverage. According to Bloomberg ETF analyst Eric Balchunas, this two-pronged approval could spark a surge of new investment into the $150 billion crypto ETF sector, especially as major funds like BlackRock’s iShares Ethereum ETF adapt to the new standards. The changes also fit within broader regulatory reforms, such as the Trump administration’s August 7 executive order expanding 401(k) access to alternative assets, which may further encourage institutional participation.

Industry participants have responded positively, noting the tax and operational advantages of the new approach. In-kind redemptions let investors postpone capital gains taxes until they sell the actual crypto assets, which can lower tax burdens for institutions. Jamie Selway, director of the SEC’s Division of Trading and Markets, said the mechanism “offers flexibility and cost benefits to ETP issuers, authorized participants, and investors,” improving overall market function. This is especially important for spot Bitcoin and Ethereum ETFs, which now collectively hold more than 1.298 million

and $152.1 billion in assets, based on Bitbo’s figures.

This regulatory progress is part of a wider trend toward loosening crypto regulations. Earlier in 2025, the SEC gave the green light to a combined spot Bitcoin-Ethereum ETP and allowed exchanges to offer options on these products. These steps followed the agency’s reversal of 2022 guidance that had restricted bank-affiliated broker-dealers from engaging in crypto, helping to level the competitive landscape. Analysts believe these shifts point to a regulatory framework tailored for crypto markets, as envisioned by Chairman Atkins, and may lead to standardized listing rules by October.

Although ETPs and ETFs remain the main focus, experts anticipate that fourth-quarter performance could be driven by clearer regulations, stablecoin integration, and the launch of new crypto offerings. Bloomberg’s James Seyffart estimated a 90–95% chance that spot ETFs linked to tokens such as

, , and will be approved before the year ends, citing the SEC’s increasing openness to crypto innovation SEC Pauses Bitwise Crypto ETF After Approval; What’s Behind the Shock Decision? [ 3 ]. Meanwhile, although not detailed here, upcoming stablecoin legislation is expected to address issues of market structure and asset custody, further supporting institutional investment.

The market has reacted favorably, with Bitcoin and Ethereum ETFs seeing continued inflows. For example, BlackRock’s iShares Ethereum ETF reached $10 billion in assets in just 251 days, making it the third-fastest fund to achieve this milestone. As the SEC continues to update its regulatory approach, the crypto sector is increasingly mirroring traditional finance, potentially unlocking more capital and liquidity in the coming quarter.