Nasdaq has submitted a filing proposing a landmark rule change concerning Exchange-traded funds (ETFs), mainly the operation of BlackRock’s spot Bitcoin Exchange-traded Fund. The proposed rule change was filed with the US SEC and seeks to include the in-kind creation and redemption mechanism.
The Proposed Exchange-Traded Fund Redemption Model
If the regulator approves, the model might change how ETFs operate in cryptocurrency and other markets. The amendment allows the Authorized Participants to take Bitcoin or cash at creation and redemption.
However, it’s a strategy that avoids cash-heavy activity and reduces other associated costs, such as broker commissions and/or bid/ask spreads. Experts like Bloomberg Exchange-traded fund analyst James Seyffart believe it’s a long overdue initiative.
The approach has a few advantages but remains unavailable to all investors except APs, while retail investors operate on a cash-based system. It would also boost transparency and inspire greater confidence among investors.
Blockchain analyst MartyParty said the model would offer insight into the ETFs’ on-chain operational transactions. Bitseeker Consulting executive Chris J. Terry said the filing makes monumental improvements in liquidity management for funds such as BlackRock’s iShares Bitcoin Trust (IBIT).
Exchange-Traded Fund’s Rule Change: Efficiency and Tax Advantages
Besides operational efficiency, the proposed in-kind redemption model has a major tax benefit. Since the approach allows direct swaps of Exchange-traded fund shares for underlying assets, it minimizes capital gains distributions — a feature especially appealing to the long-term investor.
The IBIT fund, which debuted in January 2024, has recorded over $39.57 billion in inflows, demonstrating the great demand for this new breed of financial products.
The other major players in the crypto ETF space are also making moves. Grayscale plans to convert its Solana and Litecoin trusts into ETFs and launch its Bitcoin Adopters and Ethereum Premium Income ETFs.
In addition, CoinShares, one of the largest investment firms in Europe, has filed for Litecoin and XRP ETFs, seeking to further diversify its product lineup.
Record European ETFs in 2024
European ETFs reached unmatched levels in 2024, with inflows of €247 billion, up from €145.4 billion in 2023. This milestone indicates the increased popularity of these investment products across European markets.
Data showed that iShares dominated the European ETF landscape, gathering inflows of €84.4 billion and a market share of 42.2%. Xtrackers and Amundi, also key players, recorded inflows of €36.0 billion and €27.5 billion, respectively.
The overall asset under management (AUM) for ETFs reached a record €2.18 trillion, an increase of about 33% compared with the previous year. This milestone makes Europe the hotbed of ETF investment activity for institutions and retail players.
Equity Exchange-traded Funds Lead the EU Market
In 2024, US equity ETFs led the European market with inflows amounting to €197.2 billion. The rising interest in US equities, especially large-cap blend and global large-cap, proves investors’ confidence in the American market.
Meanwhile, bond ETFs recorded inflows of €47.4 billion, down from €57.3 billion in 2023, as investors switched to shorter-duration strategies. This reflects an ongoing concern about protecting against a volatile interest rate environment.
Notably, environmental, social and government (ESG)-focused ETFs witnessed lower inflows, gathering €32.4 billion versus €42.8 billion in 2023. This decline represents a notable shift in investor priorities, suggesting waning enthusiasm for ESG-focused strategies.
The Rise of Active Exchange-traded Funds and Decline of Thematic Funds
In 2024, active ETFs continued their remarkable growth path; inflows increased from 6.7 billion euros in 2023 to 19.1 billion euros. Active ETFs now account for 7.7% of all ETF flows.
Total assets under management increased to 54.4 billion euros. JP Morgan is the biggest player in this segment, with a market share of 54.6%. In contrast, thematic ETFs had a tough year, snapping ten uninterrupted years of positive inflows.
Thematic ETFs recorded €1.1 billion outflows, with reduced interest in energy transition themes driving much of this decline.
