Could 'In-kind' be a Shoo-in?

Or, in other words, 'could cash create/redeem' be the first domino to fall?

As we noted here, in light of the most pro-crypto administration yet (not an exaggeration, in this case) progress is now "possible on the acceptability of in-kind creation and redemption of ETF [crypto] shares."

Close observers will know that creation and redemption units of all U.S. Bitcoin and Ether ETFs are currently structured in cash.

That link above contains a crash course/refresher from ETF.com, if needed.

In essence, the 'create/redeem' jargon means the mechanism by which an ETF (investing in any asset) converts the asset into shares of the fund.

The two key ways this is done are 'in cash' or 'in-kind'; the latter meaning pretty much units of the asset itself.

There are instances where 'in-cash' makes some sense; somewhat beyond the scope of this note. Crypto isn't one of them.

And the methodology is widely recognised as less operationally, financially, and tax efficient in general, which is why most ETFs use in-kind.

It should be clear that in-cash is usually the road to additional and unnecessary inefficiencies for everyone involved: the issuer, authorized participants, market makers, and investors.

So it's difficult to believe crypto ETF issuers particularly wanted to go the in-cash route when filing to list such funds, most of which came to market a little more than a year ago.

Still; the alternative may have been to not come to market at all.

Little wonder that within days of the New Year (and with the previous administration safely in the rear-view mirror), Nasdaq, the exchange on which BlackRock's iShares Bitcoin Trust ETF (IBIT) is listed, filed a proposed rule change that, if approved by the SEC, will permit a switch to in-kind creation and redemption.

If IBIT gets to switch, of course, all existing crypto ETFs will likely switch.

Again, as we've previously speculated, such a change might be one of the easiest, and quickest crypto decisions the SEC might need to make in the near term.

Typically, the SEC has 45 days from the date on which the filing is published in The Federal Register to approve, deny or extend its review period.