BlackRock Files Proposal to Allow In-Kind Creation and Redemption of Its iShares Ethereum Trust ETF (ETHA)

American investment firm BlackRock has filed a proposal with the US Securities and Exchange Commission that will allow the in-kind creation and redemption of its iShares Ethereum Trust ETF (ETHA).

American investment firm BlackRock (NYSE:BLK) has filed a proposal with the US Securities and Exchange Commission (SEC) that will allow the in-kind creation and redemption of its iShares Ethereum Trust ETF (ETHA).

This development comes three months after the asset manager made a similar application for its Bitcoin spot ETF.

What Happened: On May 9, Block disclosed in an S-1 amendment the proposed change to the ETHA fund that would permit an in-kind creation and redemption process for the ETF.

Cryptocurrency ETFs generally operate a cash creation and redemption process. Authorized participants exchange cash for shares of an ETF at the point of creation and these shares are returned for the equivalent of their cash value at the point of redemption.

But in an in-kind system, shares are exchanged for the underlying cryptocurrency between investors and the ETF issuers. This allows ETF issuers to increase their cryptocurrency holdings without any cash outflow or to decrease their holdings without selling shares in the open market.

According to Wolfe Research analyst James Seyffart, BlackRock’s application is the first to push for in-kind creation/redemption in Ethereum ETFs after the asset manager filed a similar one for the iShares Bitcoin Trust ETF (NYSE:BTC) in January 2024.

There is a final deadline around November 10, 2025, at which the SEC is expected to respond to this proposed change on BlackRock’s ETHA.

Why It’s Important: In its S-1 amendment for an in-kind creation/redemption system, BlackRock lists multiple risks, which can be described as the conventional risks all investors should know before directly or indirectly engaging with the crypto market.

Seyffart points out that there is a whole paragraph on the risk of Quantum computing.

“It is disclosing that substantial advancements in Quantum computing technology over the next few years might present opportunities to attack the cryptographic algorithms used to secure digital assets like Bitcoin (BTC) or Ethereum (ETH), ultimately compromising the assets’ security.”

He adds that although there are steps by certain network members to create a cryptographic algorithm that would be immune to Quantum computing developments, there is little evidence to show that such Quantum-proof systems can be completely built or even implemented without causing network forks.”

However, Seyffart adds that there is no need to worry as these are part of the basic digital asset risks, which BlackRock is mandated to disclose. Other dangers mentioned in the amendment proposal include exchange collapse, e.g., FTX, governance policy, and volatility.

What Next: At press time, Ethereum traded at $2,347, up 28.38% over the past week. The world’s second-largest cryptocurrency is up 48.38% on a 30-day period as the broader crypto sector continues to recover from 2022’s market crash.