Cboe Seeks SEC Nod to Allow In-Kind Transactions for Bitcoin and Ethereum ETFs
- The Cboe BZX Exchange proposed in-kind creations and redemptions for ARK 21Shares Bitcoin (ARKB) and Ethereum ETFs (CETH).
- This model reduces costs, minimizes taxable events, and keeps ETF prices aligned with their underlying assets.
- The filing follows Nasdaq's similar move for BlackRock’s iShares Bitcoin Trust, highlighting evolving ETF efficiency trends.
The Cboe BZX Exchange has filed a proposed rule change with the US Securities and Exchange Commission (SEC) to amend the ARK 21Shares Bitcoin ETF (ARKB) and the 21Shares Core Ethereum ETF (CETH) to permit in-kind creations and redemptions.
The 19b-4 filing was submitted on January 27. It would only allow in-kind creations and redemptions for Authorized Participants (AP).
Cboe’s Proposed Rule Change for Bitcoin, Ethereum ETFs
“In-kind” refers to the process of creating or redeeming ETF shares using assets like Bitcoin or Ethereum rather than cash. For example, if an AP wants to create new shares of a Bitcoin ETF, they would deliver Bitcoin to the ETF issuer in exchange for ETF shares.
Similarly, when redeeming shares, they would receive Bitcoin instead of cash. This process helps maintain the ETF’s price in line with the value of its assets. Furthermore, it reduces transaction costs and minimizes taxable events for investors.
“Cboe BZX Exchange, Inc. (“BZX” or the “Exchange”) is filing with the Securities and Exchange Commission (“Commission” or “SEC”) a proposed rule change to amend the ARK 21Shares Bitcoin ETF (the “Bitcoin Trust”) and the 21Shares Core Ethereum ETF (the “ETH Trust” and, collectively with the Bitcoin Trust, the “Trusts”), shares of which have been approved by the Commission to list and trade on the Exchange pursuant to BZX Rule 14.11(e)(4), to permit in-kind creations and redemptions, ” the filing read.
Notably, the filing follows Nasdaq’s similar application just days earlier on behalf of BlackRock for its iShares Bitcoin Trust (IBIT).
According to Bloomberg analyst James Seyffart, in-kind creations and redemptions should make ETFs trade more efficiently. This is because the process can be streamlined. Seyffart believes that ETFs should have been permitted to use this mechanism from the beginning.
“The main point is that the In-kind model is way more streamlined with less steps and less parties involved (and its how the vast majority of ETFs operate),” the analyst posted on X.
The Bitcoin and Ethereum ETFs were approved by the SEC in January and May 2024, respectively. IBIT and Grayscale Ethereum Trust (ETHE) remain the top performers.
Meanwhile, according to data from SoSo Value, ARKB maintains its position as the fourth-largest Bitcoin ETF. As of January 27, it has a cumulative net inflow of $2.91 billion. The product also held $5.10 billion in total net assets. Additionally, it holds 0.25% of the total Bitcoin market share.
On the other hand, CETH ranks as the 8th largest Ethereum ETF. It has a cumulative net inflow of $11.40 million and $16.77M in net assets as of January 27.
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