Cboe BZX Exchange Proposes Rule Change for Invesco Galaxy ETFs

Cboe BZX Exchange has submitted a proposed rule change to the U.S. Securities and Exchange Commission (SEC) for Invesco Galaxy, enabling in-kind creations and redemptions for its spot Bitcoin ETF and Ethereum ETF.

In-Kind Redemptions and Creations

In-kind redemptions and creations facilitate direct exchanges of the ETF’s underlying assets (Bitcoin or Ethereum) for ETF shares, avoiding cash transactions. This approach helps participants sidestep the need to sell the underlying crypto to create shares, thereby reducing bid/ask spreads and eliminating extra broker commissions.

Opening Avenues for Investors

The proposal, published on Thursday, expands possibilities for U.S. crypto ETFs, allowing investors to engage with Bitcoin (BTC) and Ethereum (ETH) without directly holding the assets.

As the SEC evaluates this proposed rule change, a public comment period is available for stakeholders to provide input before the final decision.

Eligibility and Participation

Authorized participants—institutions involved in the creation and redemption process—will have access to the in-kind transaction model. However, individual investors will continue utilizing the cash-based model for ETF share transactions.

Similar moves have been made by prominent ETF providers, including BlackRock, which recently sought approval for in-kind redemption mechanisms.

Expert Insights

In a January tweet, Bloomberg ETF analyst James Seyffart noted that in-kind creations and redemptions could enhance ETF market efficiency. He added that while retail investors may not see significant changes, the proposed mechanism will streamline operations by reducing the complexity and number of involved parties.

Recent Challenges for Bitcoin ETFs

The SEC approved the Invesco Galaxy Bitcoin ETF last January, making it one of the first spot Bitcoin ETFs listed in the U.S. It followed up with approval of the Invesco Galaxy Ethereum ETF in May. Despite their approval, both Bitcoin and Ethereum ETFs have faced recent challenges, highlighted by significant withdrawal trends. Notably, Bitcoin ETFs experienced $371 million in outflows over a week, while Ethereum ETFs saw $21.57 million in outflows, continuing a downward trend.