Introduction
Proponents of spot Bitcoin ETFs are engaged in discussions with the Securities and Exchanges Commission (SEC) to determine the most suitable redemption model. While institutions appear to favor an ‘in-kind’ redemption, the SEC is indicating a preference for a ‘cash-only’ model.
BlackRock Presents ‘Revised In-Kind’ Redemption Model
BlackRock Inc. (NYSE: BLK) employees held a meeting with authorities, as reported by TheBlock. During the meeting, the company presented a plan for a ‘Revised In-Kind’ redemption model. This proposal aims to provide increased flexibility for investors to redeem their ETF shares and offers tax advantages for both BlackRock’s iShares and its custodian, Coinbase.
The Choice: ‘In-Kind’ or ‘Cash-Only’ Redemption Model
The redemption models determine what investors will receive when they disinvest from the fund. Under the ‘in-kind’ model, investors would redeem Bitcoin (BTC) in exchange for their ETF shares. This would entail the transfer of liquidation risk and tax obligations to the investors. Alternatively, the ‘cash-only’ model requires the fund manager to liquidate the redeemed amount, selling Bitcoin and returning the original currency, cash, to the investors.
Expert Opinions
Castle Islands Ventures’ general partner, Matt Walsh, believes there is a slim chance of the SEC approving the in-kind redemption model. He asserts that the approval will likely favor the cash-only model. Additionally, Eric Balchunas, Bloomberg’s Senior ETF analyst, points out the U.S. agency’s preference for the cash-only model. Interestingly, both experts personally prefer the revised in-kind redemption model.
With ongoing discussions between proponents and the SEC, the final decision on the spot Bitcoin ETF redemption model remains to be seen.