BlackRock Advances In-Kind Model for Bitcoin ETFs

• Nasdaq proposes in-kind redemption to improve Bitcoin ETF efficiency.
• BlackRock is the market leader in innovative Bitcoin ETF strategies.

Nasdaq has filed a proposed rule change at the US Securities and Exchange Commission to allow in-kind creation and redemption for BlackRock’s iShares Bitcoin Trust – IBIT. This would revolutionize the operating efficiency of the largest spot Bitcoin exchange-traded fund. It could significantly enhance its performance in the market.

This in-kind creation and redemption would enable institutional investors or authorized participants (APs) to trade directly shares of the Bitcoin trust for Bitcoins, rather than in cash. It becomes more effective than the cash model. APs can quickly monitor the demand to buy or sell shares without cash transactions. For now, it benefits institutional investors and excludes retail investors.

In-Kind Redemption to Enhance Bitcoin ETF Efficiency

The filing leverages the approval of the SEC on spot Bitcoin ETFs recently that already includes IBIT which, at the moment offers a cash redemption model. Some market advocates claim that regulators should have implemented the in-kind mechanism from the start because it more accurately reflects Bitcoin’s decentralized nature. “The in-kind process has fewer intermediaries and steps, so a smoother transaction,” Bloomberg’s ETF analyst James Seyffart said.

This reflects the increasing demands of the Bitcoin ETF sector for more flexible arrangements since maturity for even more streamlined and scalable solutions is to be sought after by investors. Given the regulatory overhangs, especially regarding the brokers that handled the Bitcoin for these first spot Bitcoin ETFs launched in January 2024. They had to use a cash redemption model. The leading figures in this sector now argue that digital assets are better suited to in-kind transfers.

BlackRock’s filing is expected to influence other issuers of cryptocurrency ETFs to take in-kind redemption on board for their products. While BlackRock hasn’t filed for an Ethereum ETF, this innovation reinforces its leadership in the fast-evolving crypto ETF market. The firm continues to dominate in Bitcoin and other crypto-backed ETFs.