In-kind Exchange of Cryptos with Crypto ETPs
How to enable market-making without any market reality check
At the end of July 2025, the SEC did quite proudly announce having amended its previous ruling on crypto asset exchange-traded products (ETPs), in order to enable their in-kind creations and redemptions:1
Prior to today, crypto asset exchange-traded products (ETPs) could not use in-kind creations and redemptions—in stark contrast to other forms of commodity ETPs—a limitation that resulted in unnecessary costs and burdens.
In 1986, Hyman Minsky sardonically wrote:2
In principle every unit can "create" money - the only problem for the creator being to get it "accepted"
He further added in a footnote:
The introduction and explosive growth of money market funds and various broker cash-management accounts in the 1980s show that liabilities that function like money can be created by institutions that are not banks.
Although that explosive growth of non-bank money-like security issuances eventually triggered the North-Atlantic Financial Crisis of 2007-08, the SEC keeps forgetting about the systemic nature of financial market exchanges, as it was by approving spot cripto ETFs, one year and half ago.
The SEC capitulated on spot bitcoin ETF
Taken on 10 January 2024, the SEC decision clears the way for the first U.S. exchange-traded funds (ETF) that hold bitcoin to be sold to the public. ETFs will allow investors to hold bitcoin as easily as stocks or mutual funds.
Following Minsky’s line of reasoning, crypto issuers do not only create money-like liabilities through ETPs, but actively seek for making market for their products, in view to have them ‘accepted.’
According to the previous SEC ruling, authorized participants must redeem ETP shares for U.S. dollars, forcing the ETP issuer to buy or sell the crypto asset on the open market. This surely constraints those participants to face a spot market check on their issuances - at redemption at least, while protecting the singleness of money around cash.
But the SEC now calls this market reality check ‘expos[ing] the product and its investors to price slippage in the underlying asset class.’ Apparently, the US securities and exchange regulator does not longer trust in security actual exchange against cash.
Therefore, its regulatory update on in-kind creations and redemptions of ETPs enable authorized participants to avoid that market reality check, fuelling yet another potentially explosive growth of self-referential issuance of money-like liabilities ,while affording the hasard to fragment and segregate the USD monetary (dis)order.
As Minky prophetically argued, it can happen again…
Hyman Minsky, Stabilising an Unstable Economy, Yale University Press, as reprinted in 2008 by McGraw-Hill, p. 78-9.