BlackRock Proposes In-Kind Redemptions for Bitcoin ETF

The U.S. Securities and Exchange Commission (SEC) is reviewing a proposal from BlackRock to allow in-kind redemptions for its spot Bitcoin ETF. The regulatory agency acknowledged the proposal in a Thursday filing, inviting public comments within 21 days of its publication in the Federal Register.

The SEC had previously required cash redemptions for Bitcoin ETFs when it approved multiple spot Bitcoin ETFs in January 2024. Under the current model, when an investor redeems shares, the issuer sells Bitcoin and distributes cash to the investor. BlackRock’s proposal would instead allow authorized participants (APs) to receive Bitcoin directly rather than cash.

If approved, in-kind redemptions could provide advantages for institutional investors by reducing transaction costs and improving market liquidity. Bloomberg ETF analyst James Seyffart noted that this change would not apply to retail investors, as only APs—typically large financial institutions—would be allowed to redeem shares in Bitcoin. Shifting from cash-based redemptions to in-kind transactions could also help avoid forced Bitcoin sales, which might reduce downward price pressure on the asset. This process would make Bitcoin ETFs function more like traditional commodity ETFs, such as those for gold.

The SEC’s decision to consider in-kind redemptions marks a shift from its earlier position. When the agency initially approved spot Bitcoin ETFs, it favored a cash model due to concerns about market manipulation and volatility. However, with growing institutional interest in Bitcoin ETFs, the regulatory stance appears to be evolving. BlackRock’s request comes amid broader changes in the crypto investment landscape. In August 2023, Grayscale Investments won a lawsuit against the SEC, forcing the regulator to review its rejection of Grayscale’s attempt to convert its Bitcoin Trust into a spot ETF. This legal victory contributed to the eventual approval of multiple spot Bitcoin ETFs in January 2024.