BlackRock has filed for regulatory approval to allow in-kind creation and redemption on its bitcoin exchange-traded fund, as there have been a slew of new crypto ETF filings since changes at the US Securities and Exchange Commission.

The fund manager has filed with the SEC to allow investors to redeem its Blackrock iShares Bitcoin Trust, IBIT, in bitcoin instead of cash. This allows authorized participants, institutions responsible for creating and redeeming ETF shares in order to accurately track the underlying index or asset, to offer bitcoin for redemption instead of being forced to sell the cryptocurrency for cash. This would make the creation and redemption process more efficient and less costly, potentially lowering fees for retail investors.

NEW: BlackRock/iShares just filed to allow in-kind creation and redemption on their Bitcoin ETF $IBIT pic.twitter.com/Hy0tIEK81h

— James Seyffart (@JSeyff) January 24, 2025

Yes. Timing idk. odds idk yet. But im in the camp that this is more likely to get approved than not. It makes too much sense. The only thing holding it back was the SEC didnt wanna give clarity to brokers etc. I think this SEC is gonna be all about clarity

— James Seyffart (@JSeyff) January 24, 2025

Scott Johnsson, finance lawyer, said the SEC originally denied in-kind redemption because the agency did not want to provide regulatory clarity that licensed broker-dealers could hold and deal directly in bitcoin.

As we're now seeing issuers (re-)attempt to allow in-kind creation/redemption for the spot bitcoin ETFs, it's useful to recall why this wasn't allowed in the first place.

The SEC originally denied this request because they did not want to provide regulatory clarity that licensed… https://t.co/M8gTpAvPob

— Scott Johnsson (@SGJohnsson) January 24, 2025

“So in addition to the ETFs becoming more efficient in arbitraging price differences, if in-kind gets approved, we should see this as a further sign that the SEC is providing much needed clarity for traditional finance to operate in the space,” Johnsson added.

Breaking: Todays @BlackRock $IBIT NASDAQ in kind rule change has significant consequences to @coinbase Custody.

What does the in-kind redemption amendment for the IBIT BTC etf mean for coinbase custody and their centralized institutional lending platform?

The in-kind…

— MartyParty (@martypartymusic) January 24, 2025

@martypartymusic, a crypto commentator, said: “The in-kind redemption amendment for the iShares Bitcoin Trust (IBIT) ETF, as filed by BlackRock, has significant implications for Coinbase, particularly in terms of custody and its centralized institutional lending platform. Here’s a breakdown:

Coinbase Custody:

Faster Withdrawal: The amendment stipulates that Coinbase Custody must process withdrawals of Bitcoin to a public blockchain address within 12 hours of receiving instructions from IBIT or its authorized representatives. This requirement aims to enhance liquidity and provide quicker access to the actual Bitcoin assets, reducing the risk of holding “paper BTC” or derivatives that do not directly correlate with actual Bitcoin ownership. This change could improve investor confidence in the ETF’s backing by ensuring the cryptocurrency is readily available and not just represented by financial instruments.

Operational Impact: This amendment might increase operational demands on Coinbase’s custody services, requiring more robust systems to handle timely withdrawals, potentially increasing costs but also ensuring compliance with the ETF’s operational needs. It also implies a higher standard of operational efficiency and transparency, which might pressure Coinbase to further prove its capabilities in managing large-scale crypto assets securely and efficiently.

Centralized Institutional Lending Platform:

Impact on Lending: For Coinbase’s institutional lending platform, this amendment could mean a more direct correlation between the lending platform’s activities and the actual Bitcoin held in custody. Since the amendment ensures that Bitcoin is available on-chain promptly, it might reduce the risk of lending against non-existent or non-directly backed Bitcoin. This could either stabilize or enhance the platform’s credibility for lending activities, as the availability of real assets for backing loans becomes more transparent and immediate. However, it might also mean less leeway in how quickly they can manage or lend out assets, potentially affecting liquidity management strategies.

Market Perception: The amendment might be seen as a move towards greater transparency, potentially attracting more institutional investors who are wary of the risks associated with centralized custody solutions. It could also push Coinbase to refine its lending platform to better align with the expectations of high-stake institutional clients who demand proof of asset backing.

In summary, the amendment pushes for greater transparency and quicker asset availability from Coinbase, which could bolster trust in their custody services but also increase operational challenges. For the lending platform, it might mean a more direct link to actual Bitcoin reserves, potentially impacting how lending operations are conducted but also possibly enhancing the platform’s attractiveness to cautious institutional investors.”

ETF launches

In 2024 the SEC approved spot bitcoin and spot ether ETFs. BlackRock said IBIT reached $50bn in assets under management in 2024, making it the most successful ETP launch of all time.

The spot bitcoin ETFs just turned 1 year old.

In their first year, IBIT ranked #3 globally for net inflows at $52.3B, while FBTC secured the #9 spot with $19.7B.

As @JSeyff noted, IBIT and FBTC had the 1st and 4th most successful ETF launch years in history.

Historic. pic.twitter.com/iAov7vCmHC

— Joe Consorti ⚡️ (@JoeConsorti) January 10, 2025

Just how big was the first year for Bitcoin ETFs?
MASSIVE

Here's a list of the largest ETFs 1 year after they launched. Even if you inflation adjust the assets, 4 of the Bitcoin ETFs are in the top 20 US ETF launches of all time. $IBIT, $FBTC, $ARKB, and $BITB pic.twitter.com/MQuf6wp9Fe

— James Seyffart (@JSeyff) January 10, 2025

Galaxy Asset Management said in a report that a robust regulatory framework for digital assets will further open the door for more institutional investments and that allocations to the new asset class will become a normalized part of investors’ portfolios. The digital asset manager also expects a wider range of ETFs to be approved and launched this year, including single-cryptocurrency strategies, leveraged or inverse strategies, diversified basket strategies, and even yield-bearing strategies.

“This inflow of capital from institutions may in turn reduce volatility of digital assets, making it a more enticing asset class that captures technological innovation and growth, to be invested in,” added Galaxy. “In conclusion, entering the digital golden era, the United States is on a path to embrace crypto technology.”

James Seyffart, analyst at Bloomberg Intelligence, also highlighted the number of filing for new crypto ETFs since Gary Gensler left his role as chair of the SEC following the return of the Trump administration.

3. @CoinSharesCo XRP ETF S-1 https://t.co/ppDOQlAwly

— James Seyffart (@JSeyff) January 24, 2025

5. 19b-4 to convert @Grayscale's Litecoin Trust into an ETF $LTCN https://t.co/jmoUGURvbc

— James Seyffart (@JSeyff) January 24, 2025

actually though https://t.co/PkjT6wGjo6

— James Seyffart (@JSeyff) January 24, 2025

NEW: @TuttleCapital just filed for 10 different leveraged crypto asset ETFs. Including a bunch of memecoin products and assets that don't have ETPs yet. pic.twitter.com/i8X0rSdbK7

— James Seyffart (@JSeyff) January 27, 2025

Nate Geraci, president of ETF Store, an investment advisory firm specializing in ETFs, has predicted that at least 50 crypto-related ETFs will launch in 2025. He said: “Gary Gensler always referred to crypto as the “Wild West.” Under the Trump administration, I think that is exactly what we’ll get from an ETF perspective.”

My 10 crypto-related ETF predictions for 2025…https://t.co/uDj1OCkaVQ pic.twitter.com/ye3zA2sinV

— Nate Geraci (@NateGeraci) January 11, 2025