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US SEC Reviews NYSE Arca Proposal to Permit In-Kind Creations and Redemptions for Bitwise Bitcoin and Ethereum ETFs

US SEC Reviews NYSE Arca Proposal to Permit In-Kind Creations and Redemptions for Bitwise Bitcoin and Ethereum ETFs

On 9 July 2025, the United States Securities and Exchange Commission (US SEC) published the Notice of Filing of Amendment No. 2 to Proposed Rule Change to Amend the Bitwise Bitcoin ETF Trust and the Bitwise Ethereum ETF in Order to Permit In-Kind Creations and Redemptions, filed by NYSE Arca, Inc. The proposed Amendment No.2 seeks to amend the currently approved operational framework of the Bitwise Bitcoin ETF Trust and the Bitwise Ethereum ETF to allow for in-kind creation and redemption of shares, in addition to the existing cash-based model.

Proposed Amendments in Amendment No. 2

NYSE Arca, Inc. proposes to amend representations in the rule filings governing the Bitwise Bitcoin ETF Trust (the “Bitcoin Trust”) and the Bitwise Ethereum ETF (the “ETH Trust”) to permit in-kind creations and redemptions. Both Trusts are Delaware statutory trusts and are listed on NYSE Arca, Inc. under Rule 8.201-E, which governs Commodity-Based Trust Shares.

The amendments would allow authorised participants to deliver bitcoin or ether directly to the respective Trust, or receive those assets upon redemption, as an alternative to the current model which permits only cash settlements.

All other representations made in previous filings, Amendment No. 2 replaces and supersedes the original filing, as amended by Amendment No. 1, in its entirety.

Bitwise Bitcoin ETF Trust: Proposed In-Kind Process

  1. In-Kind Creations
    1. Authorised participants must submit a purchase order by 3:59 p.m. ET on the purchase order date (the “In-Kind Order Cutoff Time”).
    2. On the settlement date, the Bitcoin Trust delivers shares to the authorised participant in exchange for bitcoin deposited with Coinbase Custody Trust Company, LLC (the “Bitcoin Custodian”).
    3. If the bitcoin is not deposited in time, the participant may:
      1. Cancel the order,
      2. Delay settlement, or
      3. Permit the Bitcoin Trust to acquire bitcoin directly, with the participant providing US dollars.
  2. In-Kind Redemptions
    1. Authorised participants must submit redemption orders by the same cutoff time.
    2. The Bitcoin Trust delivers bitcoin in exchange for Trust shares received into its DTC account.
    3. If shares are not deposited in time, the participant may:
      1. Cancel the redemption,
      2. Delay settlement, or
      3. Permit the Bitcoin Trust to liquidate bitcoin and deliver cash equivalent proceeds.

Bitwise Ethereum ETF: Proposed In-Kind Process

  1. In-Kind Creations
    1. Similar to the Bitcoin Trust, orders must be submitted by 3:59 p.m. ET on the purchase order date.
    2. On settlement, the ETH Trust delivers shares in exchange for ether deposited with Coinbase Custody Trust Company, LLC (the “Ether Custodian”).
    3. If the ether is not received in time, the authorised participant may:
      1. Cancel the order,
      2. Delay settlement, or
      3. Permit the ETH Trust to purchase ether, with US dollar funding by the participant.
  2. In-Kind Redemptions
    1. The ETH Trust delivers ether in exchange for shares deposited in its DTC account.
    2. If the shares are not delivered on time, the participant may choose from the same options outlined above.

NYSE Arca, Inc. in it proposed Amendment No. 2, states that the proposed rule change is consistent with Section 6(b) of the United States Securities Exchange Act of 1934, and specifically with Section 6(b)(5) . The NYSE Arca, Inc. Exchange asserts that allowing in-kind creations and redemptions promotes just and equitable principles of trade, fosters coordination in securities transactions, removes market impediments, and protects investors.

According to NYSE Arca, Inc., in-kind processes increase market efficiency by allowing authorised participants to manage crypto asset sourcing themselves, rather than relying on the Trusts to transact in the open market. This reduces market impact and improves execution, especially during periods of high volatility.

The United States Securities and Exchange Commission (US SEC) is accepting public comments on the proposal. Comments may be submitted referencing File No. SR-NYSEARCA-2025-38 via the US SEC internet comment form at www.sec.gov/rules/sro.shtml or by email to rule-comments@sec.gov. The comment period remains open for 21 days following publication in the Federal Register.

(Source: https://www.sec.gov/files/rules/sro/nysearca/2025/34-103407.pdf)