BlackRock explains the redemption mechanism for Bitcoin ETF

BlackRock has assigned the ticker IBIT to a potential spot ETF based on the first cryptocurrency, and explained its creation and redemption mechanism. The information is in the updated documentation.

The redemption model contemplates cash settlement only. Redemption in kind (the underlying asset) has not yet received approval from the U.S. Securities and Exchange Commission.

\”The Trust issues and redeems Baskets on a continuous basis. These transactions will be conducted in exchange for cash. Subject to regulatory approvals, these transactions may also be conducted in exchange for bitcoins,\” the document says.

SEC favours the so-called cash settlement model, which would require BlackRock to withdraw the first cryptocurrency from custody, immediately sell it, and then return the funds to investors who wish to redeem shares.

According to Bloomberg ETF analyst Eric Balchunas, the asset manager will have to wait before adopting the in-kind mechanism.

BlackRock has gone cash only. That’s basically a wrap. Debate over. In-kind will have to wait. It’s all about getting ducks in row bf holidays. Good sign. https://t.co/vgocs1aIwS

— Eric Balchunas (@EricBalchunas) December 19, 2023

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\”BlackRock has moved to cash only. Essentially, it’s a wrapper. The debates are over. … The point is to gather one’s thoughts before the holidays. A good sign,\” he stressed.

In November the U.S. Securities and Exchange Commission discussed with BlackRock the details of the spot exchange-traded fund. At that time the firm showed two possible types of redemption.

On June 15, BlackRock filed with the Commission for a spot Bitcoin ETF product. Following the financial giant, similar requests arrived from Valkyrie, Fidelity Investments, WisdomTree and Invesco.

On August 31 the regulator delayed decision on several Bitcoin ETFs at least until mid-October. In late September the agency moved the consideration of applications to January 2024.