U.S. SEC Hints at Implementing In-Kind Redemption for Cryptocurrency ETFs
Hester Peirce, U.S. SEC Commissioner, has recently revealed the possibility of applying the in-kind redemption mechanism to cryptocurrency ETFs. This is a groundbreaking step expected to emerge in the near future.
Nasdaq and BlackRock Propose In-Kind Mechanism for Bitcoin ETF
Nasdaq has filed Form 19b-4, representing BlackRock, proposing the SEC to allow the creation and redemption of Bitcoin ETFs in the form of in-kind instead of using cash as is currently done. This change promises to enhance trading efficiency and reduce operational costs.
Commissioner Peirce explained that in the in-kind model, ETF issuers will directly transfer cryptocurrency assets when creating or redeeming, replacing fiat payments. This allows investors to withdraw Bitcoin directly from the ETF to their self-custodial wallets, increasing flexibility and security.
Promising Progress in 2025
In a meeting with Bitcoin ETF issuers in December 2023, the SEC requested the removal of references to 'in-kind redemption', only allowing 'cash creation' to maintain stability. However, by the end of 2024, Peirce signaled positively that the in-kind model would be present in the market in 2025.
Currently, most spot Bitcoin ETFs still apply a cash-based creation and redemption method, which limits efficiency for professional investors in the cryptocurrency ecosystem.
Cautionary Note From Commissioner Peirce
BREAKING: US SEC COMMISSIONER PIERCE SAYS IN-KIND US #BITCOIN ETF ARE COMING
ETF DELIVERING REAL BTC. MASSIVE 🚀 pic.twitter.com/2XNlw5qvh7
— The Bitcoin Historian (@pete_rizzo_) June 25, 2025
At the Bitcoin Policy Institute discussion, Peirce confirmed that the 19b-4 filings are still under review, acknowledging a significant response from the investment community towards this mechanism. However, she also emphasized that no specific promises have been made.
ETF analyst from Bloomberg Intelligence, James Seyffart, evaluates that the in-kind creation and redemption model will ensure smoother liquidity, suitable for the volatile liquidity of cryptocurrency funds.
In-Kind Adjustment Proposal from BlackRock
BlackRock has presented the 'In-Kind Adjustment' plan to the SEC, aimed at enhancing flexibility for fund managers when investors want to withdraw assets in the form of Bitcoin. Vivian Fang, a finance professor at Indiana University, stated that the in-kind creation and redemption model is not unfamiliar to traditional asset managers.
"You want to get your egg back, I will return that egg, regardless of whether its current value is $5 or $10. I keep the egg for you, and you get it back when you need it."
– Vivian Fang, Finance Professor, Indiana University
Fang also noted that, regardless of the model, investors can still convert to cash when redeeming shares, with the difference being that Bitcoin must be sold before converting to cash.
SEC Invites Feedback on In-Kind Mechanism
In 2024, the SEC regulated the cash redemption model for the first approved Bitcoin ETFs. However, from early 2025, the agency actively gathered community feedback on the proposal to allow in-kind redemption. In May of this year, the SEC continued to open the evaluation process for Nasdaq's proposed rule change, aimed at facilitating the in-kind mechanism for BlackRock's Bitcoin ETF.
The Nasdaq proposal was published on January 24 and posted in the Federal Register on February 12, opening up the comment and initial evaluation period. The decision deadline was extended to May 13 under Section 19(b)(2)(B) of the Securities Exchange Act of 1934.
Meanwhile, organizations like Cboe and VanEck have also filed similar applications to support the in-kind model for spot Bitcoin ETFs. In April, a representative from BlackRock met with the SEC's cryptocurrency working group to discuss the details of implementing this innovative model.
However, according to Fang, from an investor's perspective, there is not much core difference between the cash model and the adjusted in-kind model.
Source: https://tintucbitcoin.com/uoc-tinh-som-chuoc-etf-tai-san-thuc/
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