BlackRock Bitcoin ETF May Get "In-Kind" Redemptions, SEC Reviewing Proposal
The U.S. Securities and Exchange Commission (SEC) is reviewing a proposal that could change how BlackRock's popular spot Bitcoin exchange-traded fund (ETF) operates. The proposal, filed by Nasdaq on behalf of BlackRock, seeks to allow "in-kind" redemptions and creations, a move that could potentially streamline the trading process and improve efficiency for large institutional investors.
Cash vs. In-Kind: Understanding the Difference
Currently, BlackRock's iShares Bitcoin Trust operates under a "cash" model for redemptions. This means that when authorized participants (APs) – typically large financial institutions – want to redeem shares of the ETF, BlackRock must sell the underlying Bitcoin and deliver cash to the AP. The new proposal, outlined in an amended Form 19b-4 filing on Friday, seeks to introduce an alternative in-kind transfer process.
In-kind redemptions and creations would allow APs to directly exchange Bitcoin for ETF shares, and vice-versa. This would streamline the process, potentially leading to tighter spreads and more efficient trading, according to Bloomberg Intelligence ETF analyst James Seyffart.
Who Benefits? A Change for Authorized Participants, Not Retail Investors
It's important to note that this change wouldn't directly affect individual investors, who would continue to trade the ETF shares for cash. The in-kind mechanism would only be available to authorized participants.
A Flashback to the ETF Approval Debates
The debate over in-kind versus cash redemption models was a major point of discussion in the lead-up to the SEC's approval of spot Bitcoin ETFs in January 2024. The agency ultimately favored the cash model at the time.
The SEC Weighs In: Public Comment Period Opens
The SEC acknowledged the proposal in a filing on Thursday, opening a 21-day period for public comments. Following this period, the agency will decide whether to approve, disapprove, or institute further proceedings to evaluate the proposal.