SEC’s In-Kind BTC, ETH ETF Redemption Shift Happened Years Ago in Hong Kong

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Welcome to Asia Morning Briefing, a daily summary of top stories during U.S. hours and an overview of market moves and analysis. For a detailed overview of U.S. markets, see CoinDesk’s Crypto Daybook Americas.

On Wednesday in the U.S., the Securities and Exchange Commission announced that investors are now allowed to do in-kind redemptions for bitcoin and ether exchange-traded funds (ETFs).

The decision lets institutional traders create and redeem ETF shares directly in BTC or ETH, improving efficiency by avoiding fiat conversions.

But in Hong Kong, this isn’t anything new. In late 2023, during the early days of the regulatory process to bring crypto ETFs to the market (they launched in April 2024), the Securities and Futures Commission – the city’s markets regulator – mentioned in a circular that in-kind redemptions would be allowed.

Part of the reason why they were allowed was a technical one: ETF issuers were required to partner with licensed local crypto exchanges and use custody solutions. This wasn’t the case in Ontario, Canada, which had crypto ETFs first, nor the U.S. In Hong Kong there wasn’t the same debate about the status of Ether as a security as there was in the U.S.

In contrast, U.S. regulators wrestled with concerns over custody, anti-money laundering risks, and potential market manipulation.

While the SEC never explicitly banned in-kind redemptions, ETF sponsors were required to remove them from early filings. The Commission favored a cash-only approach as a cautious first step, citing untested operational processes and uncertainty over how to securely settle large crypto transfers.

That stance wasn’t without internal pushback. SEC Commissioner Mark Uyeda publicly criticized the agency’s approach during the January 2024 approval of spot bitcoin ETFs.

He pointed out that commodity-based ETFs, like those backed by gold, routinely use in-kind redemptions and questioned why crypto was being treated differently.

Uyeda argued that the SEC failed to explain why it considered cash-only redemptions “non-novel,” despite the clear deviation from standard ETF practice, and warned that the lack of reasoning set a troubling precedent.

The episode highlights how Hong Kong’s regulator moved with greater clarity and cohesion from the start as it brought these products to market.

By enabling in-kind redemptions early on, and pairing them with strict licensing and custody requirements, the SFC avoided the internal contradictions and policy drift that defined the U.S. rollout.

However, there’s going to be one side effect from all of this: tracking flows.

Crypto data aggregator SoSoValue, which provides daily flow updates for crypto ETFs, warns that “subscriptions of physical bitcoin do not generate cash inflows for the [ETFs], so they cannot be simply counted in daily net inflow statistics.”

They’ve tried to create methods and models to work around this, but say they have been unsuccessful so far.

So unless ETF issuers in the U.S. publish daily flow in cash and crypto, tracking this metric is going to be an issue. And it’s an important one to track, as it shows investor sentiment for the asset class.

Market Movements

BTC: Bitcoin is trading above $117,500 after a modest rebound, but momentum remains weak as ETF outflows persist, whales take profit near $118K, and macro headwinds, including a firm dollar and hawkish Fed expectations, continue to limit upside.

ETH: ETH is trading above $3,700. “Ethereum has proven in parallel with BTC since its inception to be the second most battle-tested network, and very likely institutions now see Ether the token as a formidable asymmetric bet alongside bitcoin,” said March Zheng, General Partner of Bizantine Capital, in a note to CoinDesk.

Gold: Gold rebounded to $3,334 on Tuesday, snapping a four-day losing streak ahead of the Fed meeting, as traders priced in steady rates despite weak U.S. job data

Nikkei 225: Asia-Pacific markets opened mixed as U.S. Commerce Secretary Howard Lutnick confirmed Trump’s Friday tariff deadline will proceed as planned, with Japan’s Nikkei 225 flat at the open.

S&P 500: U.S. stocks closed lower Tuesday, with the S&P 500 ending a six-day record streak, as investors weighed earnings, economic data, and the upcoming Fed rate decision.

Elsewhere in Crypto:

• Tornado Cash Developer Roman Storm Will Not Take the Stand, Lawyers Say (CoinDesk)
• Cornell Tech Professor Warns AI Agents And Crypto Spell Trouble (Bloomberg)
• Sen. Lummis introduces bill requiring Fannie Mae and Freddie Mac to consider crypto as an asset for mortgages (The Block)