Cboe BZX Files for In-Kind Bitcoin, Ethereum ETF Redemptions, Boosting Liquidity
Cboe BZX Exchange Inc. is pushing for a change to the redemption process for spot Bitcoin and Ethereum exchange-traded funds (ETFs), proposing to allow "in-kind" redemptions and creations. This move, mirroring a recent filing by Nasdaq on behalf of BlackRock's Bitcoin ETF, could streamline the trading process for these increasingly popular investment vehicles.
Unpacking In-Kind Redemptions: A More Efficient Way to Trade?
In a rule filing submitted on Monday, Cboe BZX proposed amending the structure of the ARK 21Shares Bitcoin ETF and the 21Shares Core Ethereum ETF to permit in-kind transactions. Currently, these ETFs operate under a cash model, requiring issuers to sell the underlying cryptocurrency and deliver cash to investors during redemptions.
The proposed in-kind model would allow authorized participants (APs) – typically large financial institutions – to directly exchange Bitcoin or Ethereum for ETF shares, and vice-versa. This could potentially lead to greater efficiency and tighter spreads, benefiting investors.
A Shift in the ETF Landscape: Who Benefits from In-Kind?
Bloomberg Intelligence ETF analyst James Seyffart clarified that this change would not impact individual investors, who would continue to transact in cash. The in-kind mechanism would primarily be utilized by APs to manage the creation and redemption process.
The In-Kind Debate: A Flashback to ETF Approvals
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 and then spot Ethereum ETFs in May. While the SEC initially favored the cash model, the recent filings by Nasdaq and now Cboe BZX suggest a potential shift in the regulatory landscape.
What's Next for Bitcoin and Ethereum ETFs?
Cboe BZX's proposal to enable in-kind redemptions for its Bitcoin and Ethereum ETFs is a significant development that could enhance the efficiency and appeal of these products for institutional players. While the SEC's approval is not guaranteed, the move, following Nasdaq's similar filing, indicates a growing momentum towards a more streamlined and potentially more liquid market for cryptocurrency ETFs.