SEC Lets Bitcoin, Ethereum and XRP ETFs Use In-Kind Creations: What That Changes

Buying shares of a spot cryptocurrency ETF feels almost identical to purchasing any other stock. An investor logs into a brokerage account, places an order, and suddenly has exposure to Bitcoin, Ethereum or XRP without ever managing a private key. What happens behind that trade, however, involves a network of specialized institutions and, since mid-2025, a regulatory shift that has quietly reshaped how these funds acquire digital assets.

A common assumption is that when someone buys $1,000 worth of a Bitcoin ETF, the fund immediately goes out and purchases $1,000 of Bitcoin. That is rarely what occurs. Most ETF transactions happen between investors on a secondary market. The buyer's cash goes to the seller of the shares, not to the asset manager. The underlying cryptocurrency only becomes relevant when sustained demand causes the supply of ETF shares to tighten or when the share price drifts away from the value of the assets held in the trust.

That is where authorized participants enter the picture.

Authorized participants, or APs, are large financial institutions that hold agreements with ETF sponsors allowing them to create and redeem shares in large blocks known as baskets. BlackRock, the world's largest asset manager, limits this function for its Bitcoin and Ethereum ETFs exclusively to these designated counterparties. Their activity is what keeps an ETF's market price anchored to the value of its underlying holdings.