Recent discussions at a panel hosted by the Bitcoin Policy Institute touched on the potential move towards in-kind redemption mechanisms for Bitcoin ETFs.
What Are In-Kind Redemptions?
In-kind redemptions allow ETF shares to be exchanged directly for the underlying asset—in this case, Bitcoin—rather than settling in cash. Many institutional players, including BlackRock and Fidelity, argue that in-kind processes reduce friction, lower tax implications, and improve ETF efficiency, especially for high-volume crypto products.
SEC Discussion
At the panel, Hester Peirce, a SEC commissioner, responded to questions about the potential shift to in-kind redemption mechanisms for Bitcoin ETFs. "Those [filings] are going through the process now. I think that’s something that’s certainly on the horizon at some point," she noted.
Potential Market Impact
While the SEC initially approved cash-only models when greenlighting spot Bitcoin ETFs in early 2024, the industry has continued to push for a more traditional in-kind model, commonly used in equity ETFs. If approved, such changes could mark a significant evolution in how crypto ETFs operate.
Discussions around shifting to in-kind redemption models for Bitcoin ETFs are ongoing, and approval of such initiatives could lead to significant improvements in efficiency and increased interest from institutional investors.
