The landscape of Bitcoin exchange-traded funds (ETFs) may be on the verge of a major transformation, thanks to a bold new proposal from Nasdaq. The financial giant has submitted a regulatory filing to the U.S. Securities and Exchange Commission (SEC) that could revolutionize how shares of BlackRock’s iShares Bitcoin Trust (IBIT) are redeemed. At the heart of this innovation is the introduction of in-kind redemptions—a move that could significantly enhance efficiency, reduce costs, and stabilize market dynamics.
This development marks a pivotal evolution in the infrastructure of spot Bitcoin ETFs, reflecting both growing institutional confidence and a maturing regulatory environment for digital assets.
Understanding In-Kind Redemptions
In traditional ETF structures, authorized participants (APs)—typically large financial institutions—create or redeem ETF shares in exchange for cash. When redeeming shares, they return them to the fund in exchange for an equivalent cash value, which the fund generates by selling underlying assets.
Nasdaq’s proposal flips this model for BlackRock’s Bitcoin ETF. Under the new framework, APs would have the option to redeem their IBIT shares directly for bitcoin, rather than cash. This is known as an in-kind redemption.
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This change eliminates the need for the fund to liquidate bitcoin holdings every time a redemption occurs. Instead, bitcoin is transferred directly from the fund’s reserves to the redeeming institution, streamlining operations and reducing friction.
While retail investors won’t have direct access to this feature, the benefits could ripple across the entire ecosystem. A more efficient redemption mechanism may lower operational expenses, improve tracking accuracy, and ultimately enhance long-term performance for all investors.
Why Now? The Shift from Cash to In-Kind
When spot Bitcoin ETFs were first approved by the SEC in January 2024, regulators opted for a cash-only redemption model. This cautious approach was designed to minimize direct exposure of traditional financial institutions to cryptocurrency custody, reducing perceived regulatory and operational risks during the early stages of adoption.
However, nearly two years later, the digital asset ecosystem has evolved dramatically. Custody solutions are now more robust, compliance frameworks are clearer, and major financial players like BlackRock have demonstrated responsible stewardship of billions in Bitcoin holdings.
With this maturity comes opportunity. Nasdaq’s proposal reflects a strategic shift toward leveraging existing infrastructure to improve scalability and efficiency. By enabling in-kind redemptions, the system aligns more closely with how traditional asset-backed ETFs operate—such as those holding stocks or bonds—where in-kind transactions are standard practice.
Key Benefits of In-Kind Redemption
1. Enhanced Operational Efficiency
The current cash redemption process involves multiple steps: verifying share ownership, calculating net asset value (NAV), selling bitcoin on the open market, and disbursing cash. Each step introduces complexity, timing delays, and counterparty risk.
In contrast, in-kind redemptions simplify the workflow. APs receive bitcoin directly from the fund’s wallet, reducing settlement time and administrative overhead. This streamlined process can lower management costs and improve fund transparency.
2. Improved Tax Efficiency
Selling bitcoin to fulfill cash redemptions triggers taxable events. These sales can generate capital gains that may be passed on to remaining shareholders, potentially impacting after-tax returns.
By avoiding forced sales, in-kind redemptions help preserve tax efficiency within the fund. Institutional investors—particularly those with long-term holding strategies—stand to benefit significantly from reduced tax leakage.
3. Reduced Market Impact and Price Stability
Large-scale redemptions under the cash model require substantial bitcoin sales, which can exert downward pressure on price—especially during periods of high volatility or low liquidity.
With in-kind redemptions, no selling is required. This removes a key source of short-term sell-side pressure, contributing to greater price stability in the broader Bitcoin market. Over time, this could make Bitcoin ETFs more attractive to risk-averse institutional capital.
Regulatory Tailwinds Fuel Innovation
Nasdaq’s proposal doesn’t exist in a vacuum. It arrives amid a broader shift in U.S. regulatory sentiment toward digital assets. Notably, recent policy changes under a pro-innovation administration have created fertile ground for advancements like in-kind redemptions.
One of the most impactful developments has been the repeal of Staff Accounting Bulletin 121 (SAB 121). Previously, SAB 121 imposed stringent accounting requirements on banks offering crypto custody services, effectively discouraging mainstream financial institutions from participating in the ecosystem.
Its removal signals growing regulatory acceptance and opens doors for deeper integration between traditional finance and digital assets. Banks and custodians can now support Bitcoin ETFs more confidently—making mechanisms like in-kind redemptions not just feasible, but strategically sound.
BlackRock’s iShares Bitcoin ETF: Leading by Example
Since its launch in 2024, BlackRock’s iShares Bitcoin Trust (IBIT) has emerged as a dominant force in the spot Bitcoin ETF space. With over $60 billion in cumulative inflows, IBIT has consistently outpaced many competitors, underscoring strong institutional demand.
This success isn’t accidental. BlackRock brings unparalleled scale, global distribution, and trust to the digital asset arena. Its entry legitimized Bitcoin as a viable institutional asset class—and now, innovations like in-kind redemptions could further solidify its leadership position.
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As the largest player in the ETF market overall, BlackRock is uniquely positioned to pilot advanced structural improvements. If Nasdaq’s proposal is approved for IBIT, it could set a precedent for other issuers to follow.
Frequently Asked Questions (FAQ)
Q: What exactly are in-kind redemptions?
A: In-kind redemptions allow authorized participants to exchange ETF shares directly for the underlying asset—in this case, bitcoin—rather than receiving cash.
Q: Can retail investors use in-kind redemptions?
A: No. This feature is available only to institutional authorized participants who create and redeem large blocks of ETF shares (known as creation units).
Q: Will this affect the price of Bitcoin?
A: Potentially yes. By reducing forced selling during redemptions, in-kind settlements may help stabilize Bitcoin’s price during market stress periods.
Q: Is this type of redemption common in other ETFs?
A: Yes. Most traditional ETFs—like stock or bond funds—use in-kind redemptions as a standard practice to manage taxes and market impact.
Q: Has the SEC approved this proposal yet?
A: Not yet. Nasdaq has filed the proposal with the SEC, but it must go through a review and public comment period before any decision is made.
Q: Could other Bitcoin ETFs adopt this model?
A: Absolutely. If approved and successful with IBIT, other issuers may seek similar rule changes for their own funds.
The Road Ahead for Bitcoin ETFs
Nasdaq’s push for in-kind redemptions represents more than just a technical upgrade—it’s a signal of maturation in the digital asset industry. As infrastructure improves and regulatory clarity grows, Bitcoin ETFs are transitioning from experimental products to core components of institutional portfolios.
This evolution benefits everyone: institutions gain better tools for managing exposure, markets become more resilient, and retail investors enjoy improved fund performance through lower costs and tighter tracking.
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With BlackRock at the helm and Nasdaq driving structural innovation, the future of Bitcoin ETFs looks increasingly integrated with mainstream finance. Approval of this proposal could mark a turning point—one that accelerates adoption and strengthens confidence across the entire ecosystem.
As we move deeper into 2025, watch for further developments in ETF mechanics, custody standards, and regulatory frameworks. The next chapter of digital asset investing isn’t just coming—it’s already being written.