SEC In-Kind Rules Drive Institutional Bitcoin Inflows

The United States Securities and Exchange Commission has authorized in-kind creation and redemption mechanisms for Bitcoin exchange-traded products, allowing investors to exchange Bitcoin directly for ETF shares. This regulatory shift eliminates the need to convert assets to cash, reducing capital-gains tax triggers and removing the risks associated with self-custody.

Major investment firms have responded by lowering barriers to entry for these transactions. BlackRock reduced the minimum transaction size for its iShares Bitcoin Trust from $25 million to $1 million, facilitating more than $5 billion in conversions. Bitwise similarly lowered its threshold from $100 million to $3 million. At Morgan Stanley Investment Management, in-kind conversions now represent 5% to 7% of total holdings in its spot Bitcoin ETF.

These institutional shifts coincide with a broader flight to safe-haven assets. Bitcoin and gold saw combined inflows of $7 billion over five trading days as investors hedged against U.S. debt risks and fiscal anxiety. This trend was catalyzed by Treasury Secretary Scott Bessent's plan to double long-dated Treasury buybacks.