Nasdaq has submitted a request to the U.S. Securities and Exchange Commission (SEC) on behalf of BlackRock, seeking to amend the rules for its spot Bitcoin exchange-traded fund (ETF). The proposed change would allow for in-kind creation and redemption of shares, offering an alternative to the traditional cash-based system.
Why In-Kind Redemptions Matter
In-kind redemptions allow Authorized Participants—institutions that manage the creation and redemption of ETF shares—to use Bitcoin directly, rather than cash, when creating or redeeming shares. This model eliminates additional costs, such as bid/ask spreads and broker commissions, making the ETF operations more streamlined.
Bloomberg ETF analyst James Seyffart noted that BlackRock’s iShares Bitcoin Trust (IBIT), which launched in January 2024, should have had this option from the start. He explained that in-kind redemptions make ETFs more efficient by reducing intermediaries and simplifying processes.
Despite the advantages, in-kind transactions are limited to Authorized Participants. Retail investors must continue using the cash-based model, which offers greater flexibility but lacks the efficiency of in-kind transfers.
Key Benefits of In-Kind Redemptions
- Improved Efficiency: In-kind transactions reduce the number of parties involved, streamlining ETF operations.
- Tax Advantages: ETFs can minimize capital gains distributions, benefiting long-term investors.
- Transparency: Crypto analyst MartyParty highlighted how this system creates an on-chain record of Bitcoin flows, enhancing accountability.
Chris J. Terry, Chief Architect at Bitseeker Consulting, emphasized that while this change primarily benefits institutional players, it helps maintain ETF liquidity and ensures smoother market functioning.
Strong Inflows for BlackRock’s Bitcoin ETF
Since its launch, BlackRock’s IBIT has attracted significant investor interest, recording $39.57 billion in inflows as of January 2024, according to Farside data. This makes it the largest spot Bitcoin ETF in the United States.
Nasdaq’s filing coincided with a surge in crypto ETF activity. On January 24, European investment firm CoinShares filed for Litecoin (LTC) and XRP (XRP) ETFs, while Grayscale sought approval to convert its Solana (SOL) and Litecoin (LTC) Trusts into ETFs. Grayscale also filed for a Bitcoin Adopters ETF and an Ethereum Premium Income ETF.
