The request to the SEC aims to optimize costs and transparency: expected tax and operational benefits for the fund.
Nasdaq has filed a request to the SEC on behalf of BlackRock, aiming to introduce an “in-kind” creation and redemption system for the iShares Bitcoin Trust (IBIT).
The “in-kind redemptions” model refers to the process by which Authorized Participants, typically large financial institutions, can redeem their ETF shares by receiving, instead of cash, the underlying assets of the fund. In the case of a Bitcoin ETF, this process would involve exchanging shares of the fund for an equivalent amount of bitcoin. This mechanism is essential to ensure operational efficiency, reduce tax costs, and optimize transactions, avoiding conversion into fiat currency.
The proposal, filed on January 24, would allow Authorized Participants to use bitcoin directly, in addition to liquidity, for the creation and redemption of fund shares. James Seyffart, ETF analyst at Bloomberg, argues that this option “should have been allowed from the very beginning” of the ETF launch, highlighting how the new system would involve fewer steps and fewer parties.
As explained by Chris J Terry, Chief Architect of Bitseeker Consulting, the “in-kind” system would optimize the ETF’s liquidity and tax efficiency, minimizing capital gains distributions for investors. It is important to note that this method would be reserved exclusively for Authorized Participants, while retail investors would continue to operate through the “cash” model, where the redemption of shares occurs in cash rather than the underlying asset of the fund.
