Nasdaq has provided a Pioneering suggestion To the US Securities and Exchange Commission (SEC) that can transfer the operational framework for Bitcoin exchange-traded funds (ETFs). The proposal, which focuses on BlackRock’s iShares Bitcoin Trust (IBIT), seeks to offer “in-kind” bitcoin redemptions, providing a simplified and cost-effective alternative to the current cash redemption process.
JUST IN: BlackRock files to allow in-kind creations and redemptions for Bitcoin ETF! pic.twitter.com/SSigX4utRG
– Bitcoin Magazine (@BitcoinMagazine) January 24, 2025
What are in-kind redemptions?
Under the proposed system, institutional players known as authorized participants (APs) — responsible for creating and redeeming ETF shares — could choose to exchange ETF shares directly for bitcoin instead of cash. This innovation eliminates the need to sell Bitcoin to generate cash for redemptions, simplifying the process while lowering operating costs.
While this option will only be available to institutional participants and not individual investors, experts point out that improving efficiency could indirectly benefit ordinary investors. By reducing operational hurdles, in-kind redemptions have the potential to make Bitcoin ETFs simpler and more cost-effective for all market participants.
Related: BlackRock CEO Larry Fink Expects $700K Bitcoin Price Amid Inflation Fears
Why change?
The cashback model, implemented in January 2024 when Bitcoin ETFs were first approved by the SEC, was designed to prevent financial institutions and brokers from transacting with Bitcoin 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. As regulations evolve and the digital asset ecosystem becomes more mature, Nasdaq and BlackRock now see a path to adopting a more efficient in-kind redemption model.
Benefits of in-kind refunds
- Operational efficiency:
- Reduces the complexity and number of steps in the recovery process.
- Simplify ETF operations, saving time and costs.
- Tax advantages:
- Avoiding selling Bitcoin reduces capital gains distributions, making ETFs more tax efficient for institutional investors.
- Market stability:
- Reduces selling pressure on Bitcoin during redemptions, which may stabilize the price of the asset.
Regulatory and market context
The Nasdaq proposal coincides with important regulatory developments under the pro-bitcoin Trump administration. Recent policy shifts, such as the repeal of Staff Accountability Bulletin 121 (SAB 121), have paved the way for broader adoption of cryptocurrencies. The removal of SAB 121 removed barriers that previously discouraged banks from offering crypto custody services, creating a more favorable environment for innovations such as the NASDAQ in-kind redemption model.
BlackRock’s Bitcoin ETF: Market Leader
Since its launch in 2024, BlackRock’s iShares Bitcoin ETF has emerged as a market leader, with inflows of more than $60 billion. The fund’s continued growth highlights institutional demand for Bitcoin investment products. Innovations such as Nasdaq’s in-kind redemption model can further enhance IBIT’s appeal to institutional investors.
Note the continued upward trend of green candles, reflecting strong and steady flows.
Related: What Bitcoin Price History Predicts for February 2025
conclusion
Nasdaq’s proposal to offer in-kind redemptions for BlackRock’s Bitcoin ETF marks a pivotal moment for the Bitcoin ETF market. By simplifying redemptions, offering tax efficiencies, and reducing selling pressure on Bitcoin, the model will significantly enhance the attractiveness and performance of Bitcoin ETFs for institutional investors.
As the Bitcoin ETF market matures and regulatory support continues to grow, innovations like these are poised to drive further adoption. If the Nasdaq proposal is approved, it could represent a critical step forward, solidifying Bitcoin ETFs as a cornerstone of institutional digital asset investing while indirectly benefiting retail participants.
With a favorable regulatory climate and growing institutional interest, the future of Bitcoin ETFs looks brighter than ever.
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