SEC Reviews Proposal to Modify BlackRock’s Spot Bitcoin ETF Redemption Process

• The SEC is evaluating a proposal to allow in-kind redemptions for BlackRock’s spot Bitcoin ETF, affecting fund operations.
• The proposal does not impact retail investors but applies to authorized participants managing ETF creations and redemptions.
• The SEC has a 21-day comment period before deciding on approval, rejection, or further proceedings for the rule change.

The U.S. Securities and Exchange Commission (SEC) is evaluating a proposed change to BlackRock’s spot Bitcoin exchange-traded fund (ETF) that would introduce in-kind redemptions. The regulatory agency has opened a 21-day comment period following its acknowledgment of the proposal. 

Proposed Change in Redemption Process

The Nasdaq stock exchange, representing BlackRock, submitted an amended rule filing to the SEC last month. This filing, recorded under Form 19b-4, aims to modify the iShares Bitcoin Trust’s redemption and creation mechanism. The change would allow authorized participants to conduct in-kind transactions instead of relying solely on cash redemptions.

When the SEC initially assessed spot Bitcoin ETFs, firms debated the optimal method for handling redemptions. The SEC required a cash-based process, where Bitcoin holdings were liquidated, and investors received cash instead of cryptocurrency. This model was ultimately approved when BlackRock and other asset managers launched their spot Bitcoin ETFs in January 2024.

The current proposal does not alter redemption access for retail investors. Instead, in-kind transactions would apply only to authorized participants handling fund creations and redemptions. According to James Seyffart, an ETF analyst at Bloomberg Intelligence, this adjustment would impact fund operations but not individual investors.

SEC’s Next Steps

The SEC opened for public comments for 21 days following the proposal’s publication in the Federal Register. Based on that feedback, the agency can approve the change, reject it, or more the evaluation process. If approved, the change could affect the operations of and liquidity available to spot Bitcoin ETFs.
The SEC’s decision to approve spot Bitcoin ETFs marked a significant regulatory shift in January 2024. Since then, firms have continued refining the structure of these funds. The proposed redemption change reflects ongoing adjustments in the evolving Bitcoin ETF market.