Nasdaq Seeks In-Kind Creation and Redemption for BlackRock Spot Bitcoin ETF

Nasdaq has submitted a proposal to the U.S. Securities and Exchange Commission (SEC) on behalf of BlackRock, aiming to enable in-kind creation and redemption for its spot Bitcoin exchange-traded fund (ETF), the BlackRock iShares Bitcoin Trust (IBIT).

The filing, submitted on January 24, seeks a rule change to allow authorized participants to use Bitcoin directly, rather than cash, for creating or redeeming ETF shares.

According to Nasdaq’s filing, authorized participants, typically large financial institutions, could choose between Bitcoin or cash to facilitate the creation of new shares or to redeem existing ones.

In-Kind Creation to Improve Efficiency

This approach improves efficiency by eliminating costs associated with bid/ask spreads and broker commissions.

While cash-based transactions provide flexibility, in-kind transfers are expected to enhance transparency and reduce intermediary steps in the ETF trading process.

James Seyffart, an ETF analyst at Bloomberg, commented on the development in a January 24 post on X (formerly Twitter), stating that BlackRock should have had access to this model from the outset.

He added that in-kind transactions streamline ETF operations, making them theoretically more efficient by involving fewer steps and participants.

However, Seyffart clarified that this feature is limited to authorized participants and not available to individual investors, who must continue using the cash model.

NEW: BlackRock/iShares just filed to allow in-kind creation and redemption on their Bitcoin ETF $IBIT pic.twitter.com/Hy0tIEK81h

— James Seyffart (@JSeyff) January 24, 2025

Crypto analyst MartyParty highlighted the added transparency provided by in-kind transfers, which allow on-chain tracking of Bitcoin flows.

Chris J. Terry, Chief Architect at Bitseeker Consulting, emphasized that the mechanism primarily benefits liquidity providers and strengthens ETF liquidity.

Terry also noted that in-kind redemptions contribute to tax efficiency by reducing capital gains distributions, benefiting long-term investors.

The IBIT, which launched in January 2024, has become the largest spot Bitcoin ETF in the U.S., recording $39.57 billion in inflows to date, according to data from Farside.

The filing comes amid heightened activity in the crypto ETF space, with six new applications submitted on the same day.

Meanwhile, European investment firm CoinShares filed for Litecoin (LTC) and XRP (XRP) ETFs, and Grayscale submitted filings to convert its Solana (SOL) and Litecoin (LTC) Trusts into ETFs.

Grayscale also announced plans for two additional funds: a Bitcoin Adopters ETF and an Ethereum Premium Income ETF.

US Spot Bitcoin ETFs See Over $35B in Inflows in 2024

As reported, spot Bitcoin ETFs in the United States recorded a remarkable $35.66 billion in net inflows in 2024, significantly exceeding early industry projections.

BlackRock’s iShares Bitcoin Trust ETF (IBIT) led the market with $37.31 billion in inflows, followed by Fidelity’s Wise Origin Bitcoin Fund (FBTC) with $11.84 billion, and ARK’s 21Shares Bitcoin ETF (ARKB) with $2.49 billion.

Other significant contributors included the Bitwise Bitcoin ETF (BITB), which reported $2.19 billion in inflows.

These figures far surpassed Galaxy Digital’s initial $14 billion first-year estimate.

However, Bitcoin ETFs faced a slight downturn toward the year’s end, with $1.33 billion in outflows since Dec. 19.

On the Ether ETF front, BlackRock’s iShares Ethereum Trust ETF (ETHA) and Fidelity Ethereum Fund (FETH) led inflows with $3.52 billion and $1.56 billion, respectively.

Grayscale’s low-fee Ethereum Mini Trust ETF (ETH) secured $608.1 million in inflows, while the Bitwise Ethereum ETF (ETHW) crossed $400 million.