Financial Insights That Matter
Nasdaq has taken a decision on Bitcoin ETFs, particularly aimed at BlackRock’s iShares Bitcoin Trust Gothat may make existing and potential Bitcoin investors breathe a sigh of relief. On Jan. 24, in an SEC filing, the exchange proposed a rule change, seeking to introduce “in-kind” Bitcoin creation and redemption. This will offer a more efficient alternative to the current cash-based system.
The proposed system lets authorized participants (APs) exchange ETF shares directly for Bitcoin instead of cash. This will allow cost-cutting and operational efficiency by avoiding the need to sell Bitcoin for cash.
Although retail investors are not eligible to participate directly in in-kind redemptions, the streamlined process could enhance efficiency and potentially reduce overall costs, indirectly benefiting retail market participants.
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Why The Shift To In-Kind?
When the SEC first approved spot Bitcoin ETFs in January 2024, including BlackRock’s iShares Bitcoin Trust, cash redemption was made mandatory. This was part of the effort to ensure regulatory simplicity and minimize direct handling of Bitcoin by brokers.
However, the swift growth of the Bitcoin ETF market, together with advancements in the digital asset ecosystem, set the ground for a more efficient operational model. The in-kind redemption system was designed as these evolving market dynamics took shape, aiming to accommodate growing institutional interest in cryptocurrency.
BlackRock’s iShares Bitcoin Trust has been quite a success story since its debut, attracting nearly $60 billion in inflows within its first year. This underscores the strong institutional demand for Bitcoin-linked ETFs.
Moreover, large investors have boosted Bitcoin prices since the U.S. election, increasing their holdings from 16.2 million to 16.4 million BTC, according to CryptoQuant.
Nasdaq’s proposal could further solidify iShares Bitcoin Trust’s position as a market leader by being the first to offer a redemption model that aligns with the needs of institutional investors.
James Seyffart, an ETF analyst at Bloomberg Intelligence, brought attention to the regulatory hurdles that initially delayed the adoption of in-kind redemption models.
If approved, Nasdaq’s proposal could significantly enhance the operational structure of Bitcoin ETFs and drive more institutional money into this space. This will also help these ETFs gain footing in mainstream investment portfolios, with BlackRock at the forefront.
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