Outside Source
The in-kind redemption model is seen as a more efficient option for the spot Bitcoin ETF and should have been allowed from “the get-go,” says an ETF analyst.
News
Nasdaq has submitted a filing on behalf of asset manager BlackRock, seeking a rule change to permit in-kind creation and redemption for its spot Bitcoin exchange-traded fund (ETF).
Bloomberg ETF analyst James Seyffart said in a Jan. 24 X post that BlackRock “should have been allowed to do this from the get-go” when the BlackRock iShares Bitcoin Trust (IBIT) launched alongside the other ten US spot Bitcoin (BTC) ETFs in January 2024.
On the same day as the filing, six more crypto ETF applications were filed in the US.
In-kind redemption limited to Authorized Participants
Nasdaq proposed “to allow for in-kind transfers of the Trust’s Bitcoin,” as per a Jan. 24 filing with the US Securities and Exchange Commission (SEC).
The filing stated that Authorized Participants — institutions that facilitate the creation and redemption of fund shares — would be able to use either cash or Bitcoin to create shares or receive cash or Bitcoin when redeeming shares.
This model is more efficient for ETFs, as it avoids bid/ask spreads and broker commissions from selling the basket to raise cash for issuing shares. However, cash creation provides more flexibility for fund participants.
The In-Kind Redemption Model is significantly more “streamlined” than the In-Cash Model, according to James Seyffart. Source: James Seyffart
Pseudonymous crypto analyst MartyParty told their 143,600 X followers on Jan. 24, “This means more transparency and onchain record of flows.”
However, individual investors won’t have access to the in-kind creation and redemption model and will need to stick with the cash model.
“Individuals won’t be able to do “in-kind” creations and redemptions,” Seyffart added.
Bitseeker Consulting chief architect Chris J Terry emphasized in a Jan. 24 X post the confusion many have had, thinking this means individuals can now deposit and redeem Bitcoin.
He said that this is not the case, as it “primarily benefits” Authorized Participants and “helps maintain the liquidity of the ETF.”
Seyffart said, “What it means is that ETFs should trade even more efficiently than they already do theoretically because things can be streamlined.”
IBIT continues to see inflows
He said one of the main benefits is that there are “less steps and less parties involved.”
Terry said that in-kind redemptions also play a vital role in the tax efficiency of ETFs. “By allowing the exchange of shares for underlying assets, ETFs can minimize capital gains distributions, which can be a benefit for investors holding shares in the fund,” Terry said.
Related: Bitcoin ETFs by Calamos offer capped upside and risk mitigation
The IBIT is the largest spot Bitcoin ETF in the US by inflows, having clocked $39.57 billion in inflows since launching in January 2024, as per Farside data.
Meanwhile on the same day as the Nasdaq filing, European investment firm CoinShares filed for both a Litecoin (LTC) ETF and an XRP (XRP) ETF. Meanwhile, asset manager Grayscale submitted filings to convert its Solana (SOL) and Litecoin (LTC) Trusts into ETFs and also filed for a Bitcoin Adopters ETF and an Ethereum Premium Income ETF.
Magazine: They solved crypto’s janky UX problem. You just haven’t noticed yet
This article first appeared at Cointelegraph.com News
