BlackRock files for ETF rule change to enable in-kind Bitcoin redemptions

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Nasdaq has filed an amended rule proposal seeking to introduce in-kind redemptions for BlackRock’s iShares Bitcoin ETF (IBIT), according to a Jan. 24 regulatory filing.

The adjustment would allow the exchange-traded fund to transfer Bitcoin (BTC) directly to investors during redemptions instead of converting holdings into cash.

The filing outlines plans to expand the ETF’s creation and redemption processes to include in-kind transfers as an alternative to the existing cash model. This method could enhance efficiency and reduce tax burdens for institutional participants.

According to the filing:

“The proposed in-kind transfer process will be an alternative to the Trust’s current cash creation and redemption process.”

The move represents a strategic shift in operational mechanisms for Bitcoin ETFs. The initial cash-based redemption process required issuers like BlackRock to liquidate Bitcoin holdings and return the cash proceeds to investors, a structure that added complexity and potential tax inefficiencies.

This update comes amid heightened anticipation for spot Bitcoin ETFs, which gained regulatory approval over a year ago.

The debate over in-kind versus cash redemptions has been a key technical consideration for issuers and the Securities and Exchange Commission (SEC), with earlier discussions favoring the cash model for its perceived simplicity and regulatory clarity.

The amended filing reflects Nasdaq’s intent to align with market demand for more flexible and investor-friendly ETF operations.

If approved, the iShares Bitcoin ETF could set a precedent for other issuers to adopt similar approaches, further advancing the integration of digital assets into traditional financial instruments.