BlackRock Pushes In-Kind Model to Revolutionize Bitcoin ETFs

Nasdaq suggests in-kind creation and redemption for the BlackRock ETF.
The in-kind concept could improve Bitcoin ETF efficiency for institutions.

Nasdaq filed a proposed rule change with the U.S. Securities and Exchange Commission (SEC) to let in-kind creation and redemption take place for the BlackRock iShares Bitcoin Trust (IBIT). This could hugely boost the operating efficiency of the largest spot Bitcoin exchange-traded fund on the market.

In-kind creation and redemption enable institutional investors, or authorized participants (APs), to trade shares of the Bitcoin trust directly for Bitcoin (BTC) instead of cash. This is more efficient than a cash-only method because the APs can better track demand, they can be highly responsive by buying or selling shares of the fund without actually going through the cash. This process works for institutional investors but leaves retail investors out.

In-Kind Creation Model Aims for Efficiency

The application builds on the SEC’s initial approval of spot Bitcoin ETFs, such as IBIT. While it has a cash redemption feature rather than a redemption in Bitcoin, advocates now argue that its result is flawed because only the in-kind process was approved and should have been allowed since inception. “First of all, they didn’t want brokers to get their hands physically on real Bitcoin,” Seyffart said, citing this reluctance as being the regulatory quarters, mainly the leadership at the SEC, such as Chairman Gary Gensler and Commissioner Caroline Crenshaw.

Crypto analyst Tom Wan noted this structure would render Bitcoin ETFs more effective as in Europe-based ETPs by enabling the APs to print and deliver directly against the Bitcoin. Bloomberg’s ETF analyst James Seyffart supported this view as he demonstrated how in-kind transfers involve fewer steps and intermediaries than the cash-based system, which makes it smoother.

This is when the Bitcoin ETF market is maturing and demand for more flexible structures has been increasing. When the first spot Bitcoin ETFs were introduced in January 2024, the SEC requested a cash redemption model citing concerns over brokers touching real Bitcoin. However, proponents claim that in-kind transfers are better suited to the decentralized nature of digital assets, and now it is an industry push, a shift.

Such is the filing set to revolutionize the kind of pace offered by other cryptocurrency ETF issuers in terms of considering in-kind redemption for such products. BlackRock has not filed a similar change for its Ethereum ETF but leads the space through innovative approaches.

The efforts of BlackRock, combined with its substantial market success, are placing the firm ahead of its competitors in the evolving crypto ETF market, potentially reshaping the landscape for Bitcoin and other crypto-backed ETFs.