SEC’s SAB 121 Rollback Clears Path For BlackRock In-Kind Bitcoin ETF Model

The U.S. Securities and Exchange Commission (SEC) rolled back SAB 121 earlier this week, clearing the path for a more efficient operational model for Bitcoin exchange-traded funds (ETFs).

Nasdaq filed a proposal with the SEC on January 24, 2025, requesting approval for BlackRock’s iShares Bitcoin ETF (IBIT) to adopt an in-kind creation and redemption model.

The proposal, filed by Nasdaq on behalf of BlackRock, seeks to amend IBIT’s operational framework.

Until now, the SEC required Bitcoin ETFs to use cash-based redemptions, a move that forced Bitcoin to be converted into cash before being transacted.

A New Era for Bitcoin ETFs

Since its launch, BlackRock’s IBIT has dominated the Bitcoin ETF space. With over $39.7 billion in total inflows, it has set the bar for other products in the market.

But the structure of IBIT has always been restricted by the SEC’s requirement for cash-based redemptions.

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The SEC’s fear was clear: allowing broker-dealers to handle actual Bitcoin directly could create regulatory headaches.

The commission preferred keeping a buffer by forcing ETFs to rely on cash-based systems, which they deemed safer and simpler for compliance.

This limited operational efficiency and price alignment, especially for institutional participants.

But now, all that’s changing. Nasdaq’s proposal to switch to an in-kind model—allowing Bitcoin transactions instead of converting assets to cash—could make IBIT even more attractive to investors.

According to James Seyffart, an ETF analyst at Bloomberg, the new model “should make ETFs trade more smoothly,” reducing the complexity and number of intermediaries involved in the transaction process.

In-kind redemptions are the standard in European Bitcoin ETFs. Tom Wan, a well-known crypto analyst, explains that this will help “BTC ETFs become more efficient” in line with European models.

Eleanor Terrett from Fox News highlighted in a post on X,

“Interesting to see this in-kind redemption/creation filing from BlackRock the day after the SEC rolls back SAB 121 — the accounting guidance that made it difficult for institutions to hold and deal directly in $BTC. Change is happening in real time.”

SEC’s Change of Heart and Market Impact

This proposal comes after the SEC’s rollback of SAB 121, a major accounting guideline that complicated banks’ ability to deal with Bitcoin directly.

This shift in regulations signals a broader acceptance of crypto by traditional finance, and the possibility of smoother integration between digital assets and established financial systems.

BlackRock’s IBIT has seen a surge in interest, with the fund attracting over $2 billion in fresh inflows over the last six days.

This rapid growth underscores the demand for institutional-grade crypto investment products.

According to data from SoSoValue, IBIT has quickly become the largest Bitcoin ETF in the U.S. by inflows. This surge places it at the forefront of the evolving crypto landscape.

As the regulatory landscape clears, institutional investors are likely to demand more flexible, cost-effective solutions.

Nasdaq’s move signals the beginning of a broader trend toward more efficient, crypto-friendly ETF structures.