Nasdaq Files Rule Change for BlackRock’s Spot Bitcoin ETF to Enable In-Kind Redemptions
Nasdaq has submitted a filing with the US Securities and Exchange Commission (SEC) on behalf of asset management giant BlackRock, seeking approval to allow in-kind creation and redemption for its spot Bitcoin ETF (exchange-traded fund), the BlackRock iShares Bitcoin Trust (IBIT). Streamlining Bitcoin ETF Operations The proposed rule change would permit Authorized Participants — institutional entities responsible for creating and redeeming fund shares — to either use Bitcoin or cash for these processes. This model is touted as a more efficient alternative to the cash-only model, as it eliminates the need for bid/ask spreads and broker commissions, reducing friction in the Bitcoin ETF trading ecosystem. Also read: Jump Trading Accuses Ex-Employee for IP Misuse to Launch Competing Blockchain Project James Seyffart, a Bloomberg ETF analyst, emphasized the advantages of this approach, stating in a Jan. 24 social media post that the model “should have been allowed to do this from the get-go” when IBIT launched earlier this year alongside ten other US spot Bitcoin ETFs. In-kind redemptions, Seyffart explained, streamline ETF operations by involving fewer steps and intermediaries. This results in enhanced liquidity and more efficient trading, benefitting market participants while maintaining transparency and reducing costs. Transparency and Limitations While the proposed model introduces greater transparency and enables on-chain records of Bitcoin flows, its benefits will be limited to Authorized Participants. Individual investors, as noted by Seyffart and other experts, will remain restricted to the cash creation and redemption model, which provides more flexibility but lacks the efficiency of in-kind processes. Chris J. Terry, chief architect at Bitseeker Consulting, clarified that individual investors would not be able to directly deposit or redeem Bitcoin through the ETF. Instead, this change primarily serves to enhance liquidity and operational efficiency at the institutional level. Also read: Elizabeth Warren Urges Investigation into Trump’s 2 Memecoins Amid Legal Concerns Terry also highlighted the tax advantages associated with in-kind redemptions, explaining that ETFs using this method can minimize capital gains distributions, providing long-term benefits for investors holding shares. IBIT’s Strong Market Position Since its launch in January 2024, the IBIT has emerged as the largest spot Bitcoin ETF in the US, recording inflows of $39.57 billion, according to data from Farside. The ETF’s robust performance reflects growing institutional interest in Bitcoin as an asset class and the expanding role of ETFs in bridging traditional financial markets with the cryptocurrency sector. Broader ETF Landscape Expands In addition to Nasdaq’s filing, Jan. 24 saw a wave of new ETF applications in the US crypto market. European investment firm CoinShares filed for Litecoin (LTC) and XRP (XRP) ETFs, while Grayscale submitted filings to convert its Solana (SOL) and Litecoin (LTC) Trusts into ETFs. Grayscale also proposed launching a Bitcoin Adopters ETF and an Ethereum Premium Income ETF, signaling continued momentum in the race to innovate and capture market share in the cryptocurrency ETF space. Also read: ZuriQ Raises $4.2M to Revolutionize Quantum Computing with Breakthrough Ion Trapping Technology The adoption of in-kind redemptions could herald a new era of efficiency and transparency for cryptocurrency ETFs, potentially attracting more institutional investors. By streamlining the creation and redemption process, the proposed model aligns with the broader goals of reducing costs and increasing liquidity, further solidifying Bitcoin ETFs as a viable investment vehicle. With the SEC yet to approve the proposed changes, the industry is closely watching for regulatory signals that could shape the future of cryptocurrency ETFs in the US. Meanwhile, the competition among asset managers continues to intensify, with new filings showing the growing demand for innovative crypto investment products.