Cash or Kind? BlackRock’s Proposed IBIT for Spot Bitcoin ETFs Causes Debate

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Qadir AK

December 19, 2023

BlackRock, a global financial leader, has made a significant move into the cryptocurrency market with an amended proposal for a spot bitcoin exchange-traded fund (ETF), named IBIT, according to a recent S-1 filing with the Securities and Exchange Commission.

The filing outlines the key details of BlackRock’s plan, especially the creation and redemption process, which is essential for its discussions with the SEC. While BlackRock leans towards a “cash redemption model,” it also allows for an “in-kind” process, depending on regulatory approval.

Eric Balchunas, an analyst at Bloomberg, notes BlackRock’s choice of a cash-based model, suggesting a strategic move before the holiday season.

Here are some more details.

Redemption Models – Explained

BlackRock emphasizes its commitment to adhering to anti-money laundering laws and sanctions. Only third-party service providers who pass thorough checks and Know Your Customer (KYC) procedures will collaborate with the trust.

The filing presents two redemption methods: the Directed Trade Model and the Agent Execution Model. The first involves direct transactions with a Bitcoin Trading Counterparty, while the second includes share surrender and fees, with the Trust converting Bitcoin to cash for redemptions.

The trust’s custodial arrangements include temporary transfers of bitcoin for trading and expense payments, supported by a Trade Financing Agreement for borrowing bitcoin or cash. The tax implications for shareholders are also addressed, with a focus on recognizing gains or losses from bitcoin sales. The proposed “in-kind” redemption model, preferred by BlackRock, typically avoids triggering taxable events.

What Next? Regulations & More…

Though BlackRock favors the “in-kind” model, the SEC seems to prefer the “cash model.” Major industry players, including BlackRock and Fidelity, are in talks with the SEC about the redemption process for spot bitcoin ETFs. As BlackRock’s proposal advances, others like Ark 21Shares and WisdomTree are also awaiting regulatory decisions.

BlackRock’s proposed IBIT ETF represents a significant step into the cryptocurrency market. The detailed filing outlines its approach to creation, redemption, compliance, and tax considerations. As the industry awaits regulatory clarity, the crypto market could see a shift in its dynamics.

This Might Interest You: Is BlackRock Poised to Acquire 1 Million BTC for Its ETF Initiative?

Cash or crypto? The debate is on. Where do you stand on BlackRock’s IBIT proposal?

Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.