Nasdaq has filed a innovative proposal to the US Securities and Exchange Commission (SEC) that could transform the operating framework for bitcoin exchange-traded funds (ETFs). The proposal, centered on BlackRock's iShares bitcoin Trust (IBIT), seeks to introduce “in-kind” bitcoin redemptions, offering a simplified and cost-effective alternative to the current cash redemption process.
<blockquote class="twitter-tweet”>
ONLY IN: BlackRock Files to Enable In-Kind Creations and Redemptions for Its Spot bitcoin ETF! pic.twitter.com/SSigX4utRG
– bitcoin Magazine (@BitcoinMagazine) <a target="_blank" href="https://twitter.com/BitcoinMagazine/status/1882900165046177839?ref_src=twsrc%5Etfw”>January 24, 2025
What are in-kind refunds?
Under the proposed system, institutional actors known as authorized participants (APs), responsible for creating and redeeming ETF shares, could choose to exchange ETF shares directly for bitcoins instead of cash. This innovation eliminates the need to sell bitcoins to generate cash for redemptions, simplifying the process and reducing operating costs.
While this option would only be available to institutional participants and not retail investors, experts suggest that improved efficiency could indirectly benefit regular investors. By reducing operational hurdles, in-kind redemptions have the potential to make bitcoin ETFs more agile and profitable for all market participants.
Related: BlackRock CEO Larry Fink Predicts bitcoin Price of $700,000 Amid Inflation Concerns
Why the change?
The cash redemption model, implemented in January 2024 when the SEC first approved spot bitcoin ETFs, was designed to prevent financial institutions and brokers from handling bitcoins directly. This approach prioritized regulatory simplicity during the nascent stages of bitcoin ETFs.
However, the rapid growth of the bitcoin ETF market has created new opportunities to improve its infrastructure. With evolving regulations and a more mature digital asset ecosystem, Nasdaq and BlackRock now see a path to adopt a more efficient in-kind reimbursement model.
Benefits of reimbursements in kind
- Operational efficiency:
- Reduces the complexity and number of steps in the redemption process.
- Streamlines ETF operations, saving time and costs.
- Tax Advantages:
- Avoiding selling bitcoins minimizes capital gains distributions, making ETFs more tax efficient for institutional investors.
- Market stability:
- It reduces selling pressure on bitcoin during redemptions, potentially stabilizing the price of the asset.
Regulatory and market context
Nasdaq's proposal coincides with major regulatory advances under the pro-bitcoin Trump administration. Recent policy changes, such as the repeal of Staff Accounting Bulletin 121 (SAB 121), have paved the way for broader adoption of cryptocurrencies. The removal of SAB 121 removed barriers that previously deterred banks from offering cryptocurrency custody services, creating a more favorable environment for innovations like Nasdaq's in-kind redemption model.
BlackRock bitcoin ETF: A Market Leader
Since launching in 2024, BlackRock's iShares bitcoin ETF has become a market leader, with more than $60 billion in inflows. The fund's steady growth highlights institutional demand for bitcoin investment products. Innovations such as Nasdaq's in-kind reimbursement model could further enhance IBIT's appeal to institutional investors.
<img src="https://bitcoinmagazine.com/.image/c_fit%2Ch_800%2Cw_1200/MjEyNDEzMDQxNTYyNjI1NjY0/bm-pro—etf-daily-flows-btc.png”>
Note the constant uptrend of the green candles, which reflects strong and consistent entries.
Related: What bitcoin Price History Predicts for February 2025
Conclusion
Nasdaq's proposal to introduce in-kind redemptions for the BlackRock bitcoin ETF represents a pivotal moment for the bitcoin ETF market. By simplifying redemption processes, offering tax efficiencies, and reducing bitcoin selling pressure, the model will significantly improve the attractiveness and performance of bitcoin ETFs for institutional investors.
As the bitcoin ETF market matures and regulatory support continues to grow, innovations like this are poised to drive greater adoption. If approved, Nasdaq's proposal could mark a critical step forward, solidifying bitcoin ETFs as a cornerstone of institutional investment in digital assets and indirectly benefiting retail participants.
With a favorable regulatory climate and growing institutional interest, the future of bitcoin ETFs looks brighter than ever.
<script async src="https://platform.twitter.com/widgets.js” charset=”utf-8″>
