SEC Approves In-Kind Crypto ETPs: Lower Costs, Market Efficiency, and Intellectual Property Implications

By De Silva Law Offices | July 31, 2025

The U.S. Securities and Exchange Commission (SEC) has made significant strides in cryptocurrency regulation. On July 29, 2025, the SEC approved rules for cryptocurrency-based exchange-traded products (ETPs), permitting "in-kind" creations and redemptions. Simply put, issuers and investors can now directly exchange ETP shares for underlying crypto assets like bitcoin or ether, rather than relying solely on cash.

Prior rules limited crypto ETPs to cash-only transactions, causing substantial transaction costs and exposing investors to price volatility during redemption, and limiting institutional participation. The shift to in-kind redemptions removes these barriers, and brings crypto ETPs more in line with traditional commodity ETFs, such as those holding gold. SEC Chair Paul Atkins characterized this decision as a big step toward a "fit-for-purpose" regulatory framework. Commissioner Mark Uyeda and Division Director Jamie Selway echoed this support, emphasizing reduced costs and improved market efficiency as primary benefits for investors.

What Are Cryptocurrency-Based ETPs?

Cryptocurrency-based exchange-traded products, or ETPs, are investment vehicles traded on stock exchanges that provide exposure to cryptocurrencies like Bitcoin or Ethereum. They include exchange-traded funds (ETFs), notes (ETNs), and other structures. ETPs can hold actual crypto assets (spot), futures contracts, or related equities. They offer investors indirect access without direct ownership, often with regulatory oversight from bodies like the SEC.

Examples span spot products (direct asset backing), futures-based (derivatives), and thematic ones (e.g., blockchain companies). Below, I've categorized prominent U.S.-listed examples as of mid-2025, based on recent approvals and market data. This list draws from sources like ETF Database, U.S. News, and NerdWallet.

Spot Bitcoin ETPs

These hold actual Bitcoin and track its price directly.

Spot Ether ETPs

These hold actual Ethereum (Ether) and were approved by the SEC in 2024-2025.

Futures-Based and Leveraged Crypto ETPs

These use derivatives like futures contracts for exposure, often with leverage or inverse performance.

Thematic or Blockchain-Focused ETPs

These invest in companies tied to crypto ecosystems rather than direct assets.

Note: Availability and details can vary by region (e.g., more ETPs in Europe like 21Shares Bitcoin ETP). Always check current SEC filings or exchanges for updates, as the market evolves rapidly post-2024 approvals. For IP or litigation angles in fintech, these products often involve patented tech like custody algorithms.

Why the Shift from Cash to In-Kind Matters for Investors

Previously, crypto ETPs relied solely on cash-based redemptions. Authorized participants had to buy or sell crypto assets on the open market, incurring extra fees and risks. This structure often led to higher transaction costs and increased exposure to price fluctuations during redemption. Institutional investors found these factors cumbersome and costly, which limited broader market participation.

Now, the SEC’s approval of in-kind redemptions transforms this landscape. Investors can directly exchange their ETP shares for underlying crypto assets like bitcoin or ether. Direct asset swaps sharply reduce transaction costs, mitigate price volatility, and streamline operations.

Additionally, the SEC approved new crypto products that combine bitcoin and ether. It also permitted investors to trade options on crypto ETPs and increased allowable position limits for these products. Chair Atkins described these changes as marking a "new day" for rational crypto regulation. By responding to market demands for greater efficiency, the SEC has positioned crypto assets firmly within mainstream financial markets.

Safeguarding Intellectual Property in Crypto Product Innovation

The SEC’s approval paves the way for cost-effective crypto ETP structures. It also incentivizes companies to create sophisticated redemption mechanisms and automated trading platforms. These innovations, such as blockchain-based custody and asset-swap protocols, are prime candidates for patent protection. For instance, smart contracts that automate asset swaps or blockchain tools ensuring secure transfers can often be patented. Industry leaders like IBM, Bank of America, and Toyota have secured thousands of blockchain-related patents, according to USPTO records.

The convergence of finance and technology means intellectual property will play an increasingly substantial role as crypto ETPs evolve. A notable example of this is United Services Automobile Association v. Wells Fargo Bank, N.A., in which juries awarded over $300 million for Wells Fargo's infringement of mobile deposit patents, demonstrating how disputes over digital financial innovations can escalate quickly.[i] As crypto products integrate proprietary technologies, companies must proactively pursue patent protections and manage infringement risks carefully. This litigation demonstrates the necessity of safeguarding innovation early.

Firms can patent innovative in-kind processes to deter imitators, though careful patent drafting is critical, as abstract economic ideas alone are not patentable under U.S. law. Engaging patent attorneys experienced in fintech innovation is essential.

The SEC approval creates many new IP opportunities. Firms can patent innovative in-kind processes to deter imitators. However, U.S. patent law excludes abstract ideas, such as basic economic practices, so careful drafting is essential and consulting with a patent lawyer licensed before the U.S. Office of Patents and Trademarks.

Litigation in this area is also growing. Empirical research indicates a shift in U.S. crypto litigation, from securities-based enforcement to private law disputes rooted in contract, intellectual property, and business formation issues.

In a recent empirical study, a researcher, Farshad Ghodoosi, found that while early crypto litigation predominantly involved securities and tort claims, there is now a significant rise in what he terms a "private law pivot," encompassing disputes over contracts, consumer protection, and intellectual property.[ii] Additionally, the World Intellectual Property Organization (WIPO) has highlighted blockchain’s potential within intellectual property systems, including smart contracts for IP licensing, immutable records for provenance tracking, timestamping evidence of creation, and enhanced transparency for rights enforcement.[iii]

Table of key IP types in crypto innovation, along with relevant examples:

This table illustrates how IP supports crypto ETPs. Courts have handled over 200 crypto-related suits by mid-2022, with many involving IP elements. As fintech converges with crypto, robust protection of innovations becomes imperative. De Silva Law Offices specializes in these domains, assisting clients with patent filings and infringement litigation.

Strategic Guidance for Fintech Innovators

The SEC’s new crypto ETP rules significantly level the playing field. They encourage innovation, drive market efficiency, and simultaneously increase the importance of protecting intellectual property. At De Silva Law Offices, we offer strategic counsel to fintech firms, asset managers, and innovators, helping them navigate regulatory changes and protect their intellectual assets. We have extensive experience in complex intellectual property litigation, enabling us to defend your innovations vigorously in court, if needed.Reach out to our seasoned legal team today to discuss how we can help safeguard your competitive advantage in the evolving crypto landscape.