BlackRock adds in-kind redemption to Ethereum ETF in latest S-1 revision

Asset manager BlackRock has filed an amended S-1 to allow in-kind creation and redemption for its Ethereum spot exchange-traded fund (ETF) ETHA. If approved, it will be possible to exchange ETF shares for the underlying assets instead of having to use cash, as is currently the case.

With the move, BlackRock joins the Ether ETF issuers who have also applied for the same amendment. These include Invesco Galaxy, VanEck, WisdomTree, and 21 Shares. There are also pending applications allowing in-kind creation and redemptions for Bitcoin ETFs.

So far, the Securities and Exchange Commission (SEC) has delayed making any decision on the requests. In April, the decision for the VanEck and WisdomTree in-kind creation requests for their spot Bitcoin and Ether ETFs was further postponed until June 3.

However, experts believe that the SEC will approve in-kind redemption this year. Senior ETF analysts at Bloomberg, Eric Balchunas, and James Seyffart, share this view. Seyffart noted that the final deadline for the SEC decision on the first-in-kind redemption request for Ethereum ETFs is November 10 this year.

If in-kind approval is granted, experts believe it will allow for more efficiency in the crypto ETF market and improve liquidity in the sector. Participants will no longer need the extra steps and costs of converting BTC or ETH to cash and vice versa.

Seyffart said back in January that ETFs should have been allowed to operate like this from their launch, but it was only a compromise at the time so that the SEC would approve. However, authorized participants and institutional investors are the real beneficiaries, as retail investors cannot take advantage of in-kind creation and redemption.

BlackRock highlights quantum computing risks for IBIT

Meanwhile, BlackRock has also submitted an updated filing for its Bitcoin product IBIT. Seyffart pointed out that this update included an expanded language on the risks of quantum computing to Bitcoin network.

According to the firm, advances in this rapidly evolving sector could impact Bitcoin’s cryptographic security.

However, Seyffart has poured cold water on any fears, noting that these disclosures are boilerplate as issuers are expected to highlight all the potential risks with any product they list or the underlying assets they invest in.

He said:

“These are just basic risk disclosures. They are going to highlight any potential thing that can go wrong with any product they list or underlying asset that is being invested in. It’s completely standard. And honestly, it makes complete sense.”

Thus, he believes no one should assign malice or intent to these disclosures as they merely reflect a standard procedure.

More crypto ETF decisions await SEC response

In-kind redemption is only one of the many decisions the SEC must make on crypto ETFs.The regulator is also dealing with pending applications to allow staking for Ether ETFs.

Several ETH ETF issuers, including BlackRock, Fidelity, Grayscale, and VanEck, have already applied to allow staking, but the regulator is still contemplating whether to allow it. In April, it postponed a decision on the Grayscale request to June 1.

Many believe the SEC would eventually approve despite the delays, especially as other jurisdictions have done the same. The SEC has shown a willingness to allow amendments to the Crypto ETFs as the sector continues to mature by allowing options trading.

Meanwhile, the regulator also needs to decide whether it will allow spot ETFs for multiple altcoins and memecoins. There were over 72 crypto-related ETF applications before the SEC, including popular altcoins such as Solana, XRP, Litecoin, and Dogecoin.

With altcoins currently enjoying a resurgence in value and talks of altcoin season gaining momentum after a recent surge in value, the approval of the ETF application could be the perfect catalyst for the long-awaited altcoin season.

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