Large bitcoin holders are getting more ways to move assets from self-custody into exchange-traded funds without triggering a taxable sale. The shift centers on lower minimum thresholds for in-kind creations and reflects rising security concerns around holding crypto directly.
Highlights
- BlackRock lowers the minimum direct bitcoin-to-ETF swap for its IBIT fund from $25 million to $1 million in July, while Bitwise cuts its threshold from $100 million to $3 million.
- In-kind creation lets investors exchange bitcoin directly for ETF shares, helping avoid capital gains tax on sales and repurchases.
- IBIT has processed over $5 billion in swaps as of now, up from $3 billion in October, as investors shift from private wallets amid security concerns.
Lower thresholds for direct ETF conversions
As reported by Coindesk, citing Bloomberg, BlackRock lowers the minimum amount of bitcoin needed for a direct swap into shares of its Nasdaq-listed spot bitcoin ETF, IBIT, to $1 million in July from $25 million. The report says Bitwise also cuts its threshold to $3 million from $100 million, making the structure available to a broader group of wealthy crypto investors.The transactions use a process known as in-kind creation, in which investors deliver bitcoin to the fund and receive ETF shares in return. That allows holders to avoid selling bitcoin first and then repurchasing ETF exposure, a step that can create capital gains tax liabilities.
Security concerns support demand
Use of the structure is already expanding as investors look for alternatives to managing private wallets and custody arrangements themselves. IBIT alone has processed more than $5 billion of these swaps, up from $3 billion in October, according to Robbie Mitchnick, BlackRock's head of digital assets.Mitchnick tells Bloomberg that kidnappings, hacks and custody failures in the crypto market are helping push some holders toward ETF ownership for all or part of their positions. The trend points to a broader convergence between digital asset wealth and traditional Wall Street investment vehicles.
In our earlier article on investors turning to gold and bitcoin amid U.S. debt worries, we covered how mounting federal borrowing and Treasury market stress were fueling demand for hard-asset hedges as the dollar weakened. We also explained that Treasury steps such as expanding bond buybacks sent a strong signal but left many market participants skeptical given the limited scale versus the size of deficits and rising yields.
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