Staking and in-kind redemptions for crypto ETFs can be reconsidered says SEC Commissioner

SEC Commissioner Hester Peirce’s recent comments to Coinage Media have reignited discussions about the potential inclusion of staking and in-kind creation/redemption features in crypto ETFs. Peirce emphasized that these elements, which were excluded from initial ETF offerings, could be revisited in the future.

Peirce stated,

“I think certainly something like staking or any feature of the product that – we saw that on the Bitcoin ETPs too – there were features of the product that some people would have liked to see included but weren’t and those are always open for reconsideration as far as I’m concerned.”

Bloomberg’s Eric Balchunas noted that Peirce’s comments suggest these features might be reconsidered, particularly if the presidential administration changes. He included in-kind creations and redemptions, which allow ETF managers to exchange ETF shares for the underlying assets without triggering taxable events.

For Bitcoin or other crypto ETFs, in-kind redemption could help maintain liquidity and minimize capital gains distributions. However, the SEC has preferred cash redemption models for Bitcoin ETFs, which involve converting the underlying crypto into cash during the redemption process.

This comes as the crypto industry anticipates the imminent launch of Ethereum ETFs, expected as early as July 23. However, the exclusion of staking provisions from these ETFs to meet regulatory requirements could potentially hinder the growth and efficiency of the Ethereum network. The SEC recently filed lawsuits intending to classify staked Ethereum as an unregistered security.

Staking is a fundamental aspect of Ethereum’s proof-of-stake consensus mechanism, contributing to network security and decentralization. By excluding staking from ETFs, a significant portion of Ethereum’s supply could be removed from the staking pool, potentially impacting network stability and security.

This approach could lead to a concentration of staking power among a smaller…