Nasdaq Proposes Rewrite of BlackRock’s Bitcoin ETF Structure to Allow In-Kind Redemptions
The Proposal
The Benefits of In-Kind Redemptions
Cost-Effectiveness
Regulatory Approval
Industry Impact
Quick Facts
Nasdaq has filed a proposal with the Securities and Exchange Commission (SEC) to amend BlackRock’s Bitcoin ETF (ProShares Short Bitcoin Strategy ETF) to allow for in-kind redemptions.
Nasdaq Proposes Rewrite of BlackRock’s Bitcoin ETF Structure to Allow In-Kind Redemptions: A Game-Changer for Crypto ETFs?
In a significant development, Nasdaq has filed a proposal with the Securities and Exchange Commission (SEC) to amend BlackRock’s Bitcoin ETF (ProShares Short Bitcoin Strategy ETF) to allow for in-kind redemptions. This move could potentially revolutionize the cryptocurrency exchange-traded fund (ETF) landscape and bring about a new era of efficiency and cost-effectiveness for investors.
For those unfamiliar, an in-kind redemption model allows investors to redeem their shares in the ETF for actual physical bitcoins rather than cash. This approach has been touted as more efficient and cost-effective than cash redemptions, which can lead to market volatility and potential losses for investors.
The Proposal
Nasdaq’s proposal, filed on January 26, 2023, seeks to amend the BlackRock-proposed ETF’s prospectus to allow for in-kind redemptions. The proposed amendment aims to provide investors with greater flexibility and control over their investments, while also reducing the risk of losses associated with cash redemptions.
Under the proposed amendment, investors would be able to redeem their shares in the ETF for actual physical bitcoins, eliminating the need for cash settlements. This approach would not only reduce the administrative burden on the ETF issuer but also provide investors with more precise control over their investments.
The Benefits of In-Kind Redemptions
So, why are in-kind redemptions considered a more efficient option? The answer lies in the nature of cryptocurrency markets. Cryptocurrencies are inherently volatile, and cash redemptions can exacerbate this volatility. When investors redeem their shares for cash, the ETF issuer must sell the underlying assets to generate the necessary funds. This sale can lead to a sudden influx of supply, putting downward pressure on the market price of the asset.
In contrast, in-kind redemptions allow investors to redeem their shares for actual physical assets, eliminating the need for cash settlements. This approach reduces the risk of market volatility and ensures that investors receive the exact amount of the underlying asset they’re redeeming for.
Cost-Effectiveness
In-kind redemptions can also lead to significant cost savings for investors. When investors redeem their shares for cash, they often incur transaction fees, including trading fees and wire transfer fees. These fees can eat into their returns, making it more challenging to achieve their investment goals.
By redeeming their shares for actual physical assets, investors can avoid these transaction fees, increasing the efficiency of their portfolio and reducing their overall costs.
Regulatory Approval
So, what does the regulatory landscape look like for in-kind redemptions? The SEC has already greenlit several cryptocurrency ETFs, including the ProShares Short Bitcoin Strategy ETF, which is the same ETF Nasdaq is seeking to amend.
However, in-kind redemptions may pose unique regulatory challenges. The SEC must consider how to ensure that in-kind redemptions do not create a “market-making” scenario, where the ETF issuer becomes a de facto market-maker, potentially manipulating the market price of the underlying asset.
Industry Impact
If Nasdaq’s proposal is approved, it could set a precedent for other cryptocurrency ETFs to follow. Other ETF issuers may be compelled to adopt in-kind redemptions to remain competitive and attractive to investors.
In-kind redemptions could also lead to increased adoption of cryptocurrency ETFs, as investors become more comfortable with the prospect of redeeming their shares for actual physical assets. This increased adoption could, in turn, drive greater institutional interest and investment into the cryptocurrency space.
