U.S. SEC’s Hester Peirce dropped a hint about the possibility of in-kind redemptions for crypto ETFs, saying they were definitely on the horizon.
Nasdaq submitted a Form 19b-4 on behalf of BlackRock in January, requesting the U.S. SEC to allow in-kind creations and redemptions for Bitcoin ETFs, a shift from the current cash-based system.
Republican U.S. SEC Commissioner Peirce explained that in-kind creations and redemptions would allow ETF issuers to deliver and redeem fund shares using crypto assets directly, rather than cash, enhancing efficiency and reducing costs. She suggested that in-kind redemptions would allow investors to withdraw Bitcoin from an ETF to a private (self-custody) wallet.
In December of 2023, the U.S. SEC met with all spot Bitcoin ETF issuers and asked them to remove any reference to “in-kind” redemptions from their filings and include “cash creates” only.
However, Peirce hinted in December 2024 that in-kind redemptions may be coming to Bitcoin spot ETFs in 2025. Currently, most spot crypto ETFs operate using cash-based creation and redemption processes, which limit efficiency for traditional crypto participants.
Peirce says she is not making any promises
During a Bitcoin Policy Institute panel discussion, Commissioner Peirce confirmed that Form 19b-4 submissions were currently under review, acknowledging a high level of interest in the “in-kind” mechanism.
However, she pointed out that although the industry was looking forward to this new model, she was not making any promises. In January, Bloomberg Intelligence ETF analyst James Seyffart argued that the in-kind creations and redemptions mechanism would increase trading efficiency for funds.
BlackRock previously presented a plan for a “Revised In-Kind” model that could give the asset manager more flexibility should investors want to redeem their shares for the underlying asset.
Vivian Fang, a Finance professor at Indiana University, said asset managers were familiar with the “in-kind” redemption model, adding that retail investors who wanted to redeem their shares would get their share of Bitcoin from BlackRock in return, which could then be turned into cash via a broker-dealer.
“You want your one egg back, I’ll give you your one egg back, I don’t have to immediately care about how much that egg is selling for now, it can be $5, it could be $10, but I’m holding one egg for you and you’re getting one egg back when you want it.”
-Vivian Fang, Finance Professor at Indiana University
However, Fang explained that investors could still get cash back when redeeming their shares, no matter the model. She said the only difference was that the Bitcoin (or egg) had to be sold to raise that cash in the cash model.
U.S. SEC seeks comments on in-kind creations and redemptions
The U.S. SEC mandated a “cash redemption” model when the initial wave of spot Bitcoin ETFs received approval in January 2024. However, the agency announced in February this year that it sought comments on the proposal to allow in-kind redemptions. In May, the U.S. SEC launched proceedings to assess Nasdaq’s proposed rule change allowing in-kind creations and redemptions for BlackRock’s Bitcoin ETF.
Nasdaq filed the proposed rule change on January 24, 2025, and it was published in the Federal Register on February 12, triggering an initial review period.
On March 11, the SEC extended its decision deadline to May 13. The May 13 order formally instituted proceedings under Section 19(b)(2)(B) of the Securities Exchange Act of 1934. The U.S. SEC solicited public comments to evaluate whether these changes aligned with Section 6(b)(5) of the Act. In January, Cboe and VanEck also filed for in-kind creations and redemptions for their spot Bitcoin ETFs.
In April, a BlackRock delegation led by the Head of Regulatory Affairs, Benjamin Tecmire, met with the U.S. SEC’s Crypto Task Force to iron out matters regarding the potential of allowing future in-kind redemptions and creations for crypto ETFs. However, Fang claimed that there was no difference between the cash model and the revised in-kind model from the investor’s point of view.
KEY Difference Wire : the secret tool crypto projects use to get guaranteed media coverage
