Physical redemption breakthrough signal! Five major Bitcoin/Ether ETF issuers team up to amend applications as the SEC's attitude shifts imminently.

Bloomberg ETF analyst James Seyffart disclosed significant progress: five issuers, Ark 21Shares, VanEck, Invesco, WisdomTree, and Fidelity, have submitted amended applications to the U.S. SEC, requesting to add in-kind creation and redemption features for their Bitcoin and Ethereum spot ETFs. Seyffart views this as a "positive signal" of a shift in the SEC's attitude, with regulatory approval potentially imminent. The in-kind mechanism could enhance the operational efficiency of the ETF and help investors avoid Capital Gains Tax, but it is only applicable to Authorized Participants (AP), and retail trading remains unaffected. This move, along with the applications for staking features by institutions like BlackRock, constitutes a wave of ETF upgrades.

Five Major Institutions Take Collective Action as Physical Mechanism Application Wave Surges

• Centralized Submission: Five top ETF issuers have submitted revised documents to the SEC through the CBOE exchange, collectively requesting the addition of physical subscription and redemption mechanisms. This is the largest collective action in the industry since the SEC delayed VanEck's similar application in April.
• Signal of Regulatory Attitude Shift: Seyffart pointed out that this concentrated application is a "positive sign" of the SEC's loosening stance, and the regulatory agency may be making "fine adjustments" with issuers. The previous delay in decision had raised market concerns about the approval prospects for the physical model.
• Core Demand: Allow authorized participants (APs, such as large market makers and Wall Street institutions) to directly exchange Bitcoin/Ethereum Spot (instead of cash) with ETF managers for shares, simplifying the operational process.

Physical Mechanism: Analysis of Efficiency Improvement and Tax Advantages If approved, the physical mechanism will bring two core values:

1. Avoiding Capital Gains Tax: AP does not need to sell cryptocurrency during the subscription and redemption process, directly exchanging Spot for ETF shares, avoiding taxable events and significantly reducing operational costs.
2. Enhancing Operational Efficiency: Reducing cash transfer links, lowering tracking errors and friction costs, making the ETF net asset value more closely anchored to the underlying asset prices. Seyffart emphasizes that this will make ETF operations "more efficient."

Retail Investor Impact: Mechanism Transparency and Seamless Trading Upgrade Seyffart clearly stated that the physical mechanism does not change the retail investor experience:

• AP Participation Only: The physical subscription and redemption rights are only open to qualified large institutions (AP), and ordinary retail investors cannot directly use this feature.
• No Impact on Secondary Market: The process, efficiency, and cost of retail investors buying and selling ETF shares on the stock exchange are not affected at all. The ETF under the current cash creation and redemption model has achieved "extremely high trading efficiency."
• Indirect Benefits: Mechanism optimization may reduce overall fund operating costs, which may be reflected in lower management fees in the long term, but this is not a direct effect.

Industry Trends: Physical Redemption and Staking Function Become the Dual Engines for ETF Upgrades This application for the physical mechanism resonates with another industry trend:

• Stake Function Competition: BlackRock last week applied to add stake functionality to its $8.9 billion iShares Ethereum Trust, with several other issuers including Fidelity having submitted similar applications.
• Comprehensive Upgrade of Product Capability: Issuers are evolving from a single "Spot Exposure" to Composite Yield Products, enhancing the competitiveness of the ETF market by combining the efficiency advantages of physical redemption with the income-generating attributes of staking.
• Key Period for Regulatory Game: The approval results of the physical mechanism and staking function will become a barometer for observing the SEC's tolerance for innovative crypto financial instruments.

Conclusion: The collaboration of five major ETF issuers to promote the physical redemption mechanism marks a key step towards the advancement of crypto financial infrastructure into mature markets. Although this mechanism will only benefit institutional participants (AP) in the short term, its enhanced operational efficiency and tax advantages will increase the overall attractiveness of ETFs, indirectly creating value for a broader range of investors. Coupled with the development surge of staking functionalities, cryptocurrency ETFs are undergoing a paradigm shift from "tracking tools" to "yield-enhancing products." The speed and attitude of the SEC's approval of this batch of revised applications will serve as an important touchstone for determining whether Bitcoin/Ether ETFs can truly match the maturity of traditional commodity ETFs. If approved smoothly, it will provide a more optimized entry point for traditional capital in the trillion-dollar range, further consolidating the position of cryptocurrencies in the mainstream financial system.