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BlackRock Proposes In-Kind Redemption for Ethereum ETF, Aims to Boost Holdings

Coin WorldSaturday, May 10, 2025 3:12 pm ET

1min read

American investment firm BlackRock has submitted a proposal to the US Securities and Exchange Commission (SEC) to enable in-kind creation and redemption for its iShares Ethereum Trust ETF (ETHA). This move follows a similar application made by the asset manager for its Bitcoin spot ETF three months prior. The amendment to the S-1 form of the Ethereum spot ETF ETHA, filed on May 9, aims to facilitate an in-kind creation and redemption process for the fund.

Typically, crypto spot ETFs operate on a cash creation and redemption process, where authorized participants exchange cash for ETF shares and vice versa. In contrast, an in-kind system allows for the direct exchange of shares for the underlying cryptocurrency between investors and ETF issuers. This method enables ETF issuers to increase their cryptocurrency holdings without liquidating any cash reserves.

BlackRock's application marks the first instance of an in-kind creation/redemption system being proposed for Ethereum ETFs. The SEC is expected to provide a definitive response to this proposed change by November 10, 2025.

In its S-1 amendment, BlackRock outlines several risks associated with the in-kind creation/redemption system, including conventional risks that investors should be aware of before engaging with the crypto market. One notable risk highlighted is the potential impact of advancements in quantum computing, which could compromise the cryptographic algorithms of digital assets like Bitcoin or Ethereum, thereby undermining their security. While efforts are being made to develop quantum-resistant cryptographic algorithms, there is limited evidence to suggest that such systems can be fully implemented without causing network disruptions.

Other risks mentioned in the amendment include potential exchange collapses, governance policy issues, and market volatility. These risks are part of the inherent dangers of digital assets, which BlackRock is obligated to disclose to investors.