The U.S. Securities and Exchange Commission (SEC) has started reviewing Nasdaq’s proposal to allow in-kind creation and redemption for BlackRock Bitcoin ETF, a model that could change how spot crypto ETFs work.The request, filed by Nasdaq for BlackRock’s iShares Bitcoin Trust, asks for approval to let institutional investors create or redeem ETF shares using actual Bitcoin, instead of converting into or out of cash.
While the SEC hasn’t made a decision yet, this new stage of the process means regulators are taking a closer look at how in-kind models would work in practice, especially for digital assets.
What the SEC Is Reviewing and Why It Matters
After the news report of May 13, 2025, the SEC issued an official notice starting proceedings under ‘Section 19(b)(2)(B)’ of the Securities Exchange Act of 1934 allowing the Commission to collect further data and comments from the public prior to making a decision on whether to approve or deny the rule change proposed by Nasdaq.
Nasdaq’s filing, submitted on January 24 and published in the Federal Register on February 12, updates operational details for BlackRock’s ETF, how shares are issued or redeemed. The BlackRock Bitcoin ETF in-kind model would allow these transactions to be done with Bitcoin directly, instead of cash. This is already common for many commodity ETFs but not yet for spot Bitcoin funds in the U.S.
The SEC noted it hasn’t made a decision and needs more input due to the legal and market structure implications of in-kind systems for crypto assets.
Why BlackRock Is Seeking In-Kind Flexibility
Since the iShares Bitcoin Trust was approved in January 2024, BlackRock has been gaining speed in the spot Bitcoin ETF space. But like other funds, it currently uses cash creations and redemptions, which can add extra steps, delays and costs.
In-kind transactions would allow authorized participants to transfer Bitcoin directly to the ETF in exchange for shares. That would reduce reliance on intermediaries, speed up processing times and possibly tighter spreads, especially during volatility.
Larry Fink, CEO of BlackRock, previously said the firm’s interest in tokenization and blockchain is about improving market transparency and operational efficiency. The push for in-kind is part of that broader strategy.
Industry Reactions and Implications
Industry insiders view the SEC’s move as both a regulatory speed bump and an opportunity for innovation. While this is not an approval, starting the process means the agency is willing to consider next-gen ETF architectures.
Nate Geraci, President of ETF Store, has stated that if the SEC allows BlackRock Bitcoin ETF’s in-kind model, it will be a huge step forward for spot crypto ETFs. It will reduce friction across the system.
Asset managers like Fidelity, Ark Invest and Bitwise are also keeping close watch s to how this will play out. If Nasdaq gets approval, it could prompt other ETF issuers to follow suit and raise the bar for product design in the US crypto ETF space.
What’s at Stake for the Crypto Market
This isn’t just about one fund. If the SEC approves Nasdaq’s proposal, it could set a standard for other spot Bitcoin ETFs to also use in-kind models.
Supporters argue this is better suited for crypto. It could reduce friction, cut trading costs, and allow ETFs to operate more like their gold and commodity counterparts, which already use in-kind.
However, the SEC advocates for caution. In its May 13 order, the agency pointed to ongoing concerns around custody, settlement risks, and potential manipulation in the Bitcoin market. All of which must be weighed carefully, especially as spot crypto ETFs continue to attract institutional inflows.
Conclusion: What’s Next
The SEC is now taking public comments. Market participants, investors and policy experts can submit comments over the next few weeks. No deadline has been set but the agency will use these comments to inform its decision.
While approval isn’t guaranteed, this opens the door for a big change in how spot Bitcoin ETFs can operate in the US. For BlackRock and other asset managers, it’s an opportunity to make their products more efficient. For the SEC it’s another test of how well traditional market rules apply to crypto.
FAQs
What is BlackRock Bitcoin ETF?
The BlackRock iShares Bitcoin Trust is a spot Bitcoin ETF through which investors can get exposure to Bitcoin without holding the asset themselves. It was approved in January 2024 by the SEC.
What is in-kind creation and redemption?
In-kind transactions allow ETF shares to be created or redeemed using the underlying asset, in this case, Bitcoin, rather than cash. This is already common for some commodity ETFs.
Why is the SEC reviewing this now?
Nasdaq proposed a rule change to allow in-kind functionality. The SEC’s proceedings are to gather input and assess whether the model fits with investor protection and market integrity rules
Could this affect other Bitcoin ETFs?
Yes. If approved, it may pave the way for similar changes across other spot Bitcoin ETFs, making the in-kind model a new standard for crypto-based funds.
Glossary
In-kind creation method: involves creating ETF shares using the actual underlying asset (such as BTC), rather than cash.
Spot Bitcoin ETFs track the spot prices of Bitcoin, with the underlying being literal Bitcoins rather than futures contracts.
Authorized Participants: institutions that interact directly with the ETF to create or redeem shares.
Section 19(b)(2)(B): a provision of the US securities law which allows the SEC to initiate a public comment period on a proposed rule change.
Nasdaq Rule 5711(d): the Nasdaq listing rule for commodity-based trust shares, including Bitcoin ETFs.
Sources
Disclaimer: This is for informational purposes only, and not financial or investment advice. Always consult with a financial advisor before making investment decisions.
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