ETF Expert: Why This SEC Approval Would Be A ‘Game Changer’ For Bitcoin

The way U.S. financial institutions interact with Bitcoin may be on the brink of a major shift, according to a leading ETF expert. Nate Geraci, founder of the ETF Store, shared with The Thinking Crypto podcast host Tony Edward that if the SEC approves BlackRock’s iShares Bitcoin Trust (IBIT) proposal for “in-kind” Bitcoin redemptions, it would be a “game changer,” as the move would not only provide much-needed regulatory clarity, but also open the door for financial institutions to confidently hold and transact in Bitcoin, Geraci said. 

.@NateGeraci to @ThinkingCrypto1: BlackRock Bitcoin ETF Approval for In-Kind Redemptions Would Be ‘Game Changer’

“I think this would be a bigger deal optically than what it would actually mean for the ETFs themselves. And what I mean by that is that there’s no question in-kind… pic.twitter.com/sXdiDYSpf1

— CAPITAL (@capitalnewshq) January 29, 2025

TONY EDWARD: Last week, Nate, we saw a flurry of ETF applications on Friday, of all days. But the big one I wanted to get your expertise on is the in-kind creation and redemption for the BlackRock iShares Bitcoin Trust. Can you tell us about this and why you think the timing happened now?

NATE GERACI: Yeah, so I think this would be a bigger deal optically than it would actually be for the ETFs themselves. What I mean by that, Tony, is that there’s no question in-kind creation and redemption would make the ETFs a little more efficient. The ETFs would probably track Bitcoin’s price more closely, and you’d likely see slightly tighter trading spreads, maybe a little better overall performance. But these ETFs are already operating with very small premiums and discounts. They trade with tight spreads and track Bitcoin’s price extremely well. So, any improvements operationally would be marginal.

The big story here is that if this is approved, it would essentially be the SEC giving the okay for market makers and authorized participants to hold and transact in Bitcoin. Right now, there’s no regulatory clarity for market makers. If this gets approved, that clarity would likely come along with it. I think that’s the real game changer. And this also ties into the SEC rescinding SAB 121, which will allow financial institutions with market-making businesses to hold Bitcoin. So, I think these two developments are closely tied together.

TONY EDWARD: That was going to be my next question—Is this because of SAB 121 getting repealed? I’m assuming it is, because now the banks and institutions don’t have to look over their shoulder. They can hold these assets directly on their balance sheet without it being treated as a liability.

And just for the folks who may not be familiar with this, “in-kind” means they can redeem in actual Bitcoin versus cash, right?

NATE GERACI: Yeah, but there’s a very important distinction here. So, that’s not at the individual investor level. This is at what’s called the authorized participant level. These are big financial institutions that help keep the share price of an ETF aligned with the price of the underlying asset. And we’re talking about transacting in units of, say, 10,000 shares. Here’s how I like to break this down, Tony, to simplify it. I always describe an ETF as a warehouse—it’s just a vehicle that holds assets, similar to how a warehouse might hold goods. Let’s take gold as an example, even though we’re talking crypto here. I think it’s easier to conceptualize.

So imagine someone puts gold into a warehouse, and in return, they get a receipt that says they own a certain amount of gold stored there. That person can then trade that receipt back and forth without the gold ever leaving the warehouse. And if they want, they can present the receipt back to the warehouse and get the gold back. That’s basically how an ETF works. For example, with a gold ETF, gold is delivered into a trust, and the ETF shares represent ownership in that trust. Those shares can be traded back and forth.

What’s happening with spot Bitcoin ETFs right now is that instead of delivering Bitcoin directly into the trust or the warehouse in my example, market makers have to give cash to the warehouse to buy the Bitcoin. It’s just not as efficient. But going back to the authorized participants—hopefully, I’m not losing people here—they’re the party that actually transacts with the warehouse. They facilitate the creation and redemption of those receipts or ETF shares.