The U.S. Securities and Exchange Commission (SEC) has approved a new way for cryptocurrency exchange-traded products (ETPs) to create and redeem shares. This change lets authorized participants swap ETP shares directly for the actual crypto assets, instead of doing it with cash. The SEC believes this update will lower costs and increase efficiency for crypto ETPs. It should also provide more flexibility and save money for issuers and intermediaries.

Institutional Adoption of Crypto Investment Vehicles

This reform is seen as a step toward greater acceptance of crypto investments by institutions. It could boost market liquidity and tighten trading spreads, which makes crypto investments more efficient. With the SEC’s approval of in-kind creations for crypto ETPs, we expect to see less price volatility in the coming months. While the announcement may cause a temporary increase in trading activity, the overall efficiency will decrease market friction and price fluctuations. Traders might want to consider strategies that benefit from lower volatility. This could include selling covered calls or cash-secured puts on the underlying assets. The new system greatly reduces the difference between the market price of an ETP and its net asset value (NAV). This happens because exchanging crypto for ETP shares directly makes arbitrage faster and cheaper for authorized participants. For those trading derivatives, this means the profitable arbitrage opportunities between ETPs and the spot or futures markets will mostly vanish.

Impact on Market Liquidity and Trading Volumes

We view this as a significant trigger for more institutional adoption, much like how gold ETFs launched in 2004 led to a prolonged bull market for gold. The initial cash-create spot bitcoin ETPs approved in early 2024 have already attracted over $60 billion in assets, showing strong demand. This new in-kind model will likely speed up inflows from large institutions that have been waiting to invest. This structural improvement should boost market liquidity for the underlying crypto assets. We expect trading volumes for Bitcoin, which have averaged around $50 billion daily in 2025, to rise as ETPs become more popular. This increased liquidity will lead to tighter bid-ask spreads on derivative contracts, lowering transaction costs for everyone involved. Given these factors, we are positioning ourselves for a steady, positive trend in the prices of underlying crypto assets. The combination of reduced volatility, growing institutional interest, and improved liquidity creates a favorable setting for long-term bullish strategies. We are considering longer-dated call options to leverage this anticipated growth while managing risk. Create your live VT Markets account and start trading now.

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