**Nasdaq Proposes Innovative In-Kind Redemption Model for Bitcoin ETFs**
Nasdaq has put forth a pioneering proposal to the U.S. Securities and Exchange Commission (SEC) that could revolutionize the operational structure of Bitcoin exchange-traded funds (ETFs). This proposal, centered on BlackRock’s iShares Bitcoin Trust (IBIT), aims to implement “in-kind” bitcoin redemptions, providing a more efficient and cost-effective alternative to the existing cash redemption method.
**Understanding In-Kind Redemptions**
Under the proposed framework, authorized participants (APs)—institutional entities responsible for creating and redeeming ETF shares—would have the option to exchange ETF shares directly for bitcoin instead of cash. This advancement removes the necessity of liquidating bitcoin to obtain cash for redemptions, thereby simplifying the process and reducing operational expenses. Although this option would be limited to institutional participants, experts believe that the enhanced efficiency could indirectly benefit retail investors by making Bitcoin ETFs more streamlined and cost-effective for all market players.
**Rationale for the Change**
The cash redemption model, introduced in January 2024 with the SEC’s approval of spot Bitcoin ETFs, was designed to prevent financial institutions and brokers from directly handling bitcoin. This approach prioritized regulatory simplicity during the early stages of Bitcoin ETFs. However, the rapid expansion of the Bitcoin ETF market has unveiled new opportunities for infrastructure improvement. With evolving regulations and a more developed digital asset ecosystem, Nasdaq and BlackRock now recognize the potential for a more efficient in-kind redemption model.
**Advantages of In-Kind Redemptions**
– **Operational Efficiency:** Simplifies the redemption process, reducing complexity and saving time and costs.
– **Tax Benefits:** Avoiding the sale of bitcoin minimizes capital gains distributions, enhancing tax efficiency for institutional investors.
– **Market Stability:** Diminishes sell pressure on bitcoin during redemptions, potentially stabilizing the asset’s price.
**Regulatory and Market Context**
Nasdaq’s proposal aligns with significant regulatory changes under the pro-Bitcoin Trump administration. Recent policy adjustments, including the repeal of Staff Accounting Bulletin 121 (SAB 121), have facilitated broader cryptocurrency adoption. The elimination of SAB 121 has removed obstacles that previously deterred banks from providing cryptocurrency custody services, fostering a more conducive environment for innovations like Nasdaq’s in-kind redemption model.
**BlackRock’s Bitcoin ETF: A Market Leader**
Since its launch in 2024, BlackRock’s iShares Bitcoin Trust has positioned itself as a leader in the Bitcoin ETF market, paving the way for further advancements in the sector.
