SEC and BlackRock Move Forward on Cryptocurrency ETFs with Introduction of In-Kind Redemptions

• In-kind redemptions can reduce costs and increase efficiency.
• BlackRock leads with strong exposure to BTC and ETH.
• Favorable regulatory alignment can drive adoption.

In a landmark meeting this week, BlackRock, together with the U.S. Securities and Exchange Commission (SEC), explored significant changes to the way cryptocurrency exchange-traded products (ETFs) operate, signaling a possible transition to the cash redemption model for digital asset funds.

The meeting, held confidentially on Monday, April 1, was attended by the SEC’s newly created Cryptocurrency Task Force. The focus was on the operational structure of cryptocurrency ETFs, where the BlackRock team presented in depth the advantages of cash redemptions. This method allows authorized participants to exchange their ETF shares directly for the underlying digital asset, such as Bitcoin, instead of doing so in cash. This practice promises to increase efficiency and reduce operational costs.

“It is believed that this approach to cash redemptions may be gaining regulatory traction, which would signal a significant step forward for the digital asset industry,” a BlackRock representative explained.

During the meeting, BlackRock highlighted its growing exposure to cryptocurrencies, with an impressive 574.000 BTC under management in its IBIT fund and over 1,1 million ETH in its Ether ETF. The details of these operations underscore the manager’s commitment and confidence in digital assets.

The discussion also addressed the need to adapt existing exchange-traded product (ETP) workflows to support cash-based systems. Since the SEC approved spot Bitcoin ETFs in January 2024, redemption models have been exclusively cash, citing custody and compliance concerns.

BlackRock’s implementation of the in-kind redemption model, as registered on Nasdaq, aims to align cryptocurrency ETFs more closely with traditional commodity ETFs, setting a new standard for the industry.