Wall Street is making it easier for crypto investors to transition from self-custody to exchange-traded funds without having to sell their digital assets first.
According to Bloomberg, in-kind creation is becoming increasingly common among major issuers, allowing investors to deposit Bitcoin directly into a spot ETF and receive shares in exchange. This mechanism maintains market exposure while transferring asset custody to the traditional financial system.
The most significant change is about access. In July, when this service first became available, BlackRock lowered the minimum threshold for converting Bitcoin into its ETF from $25 million to $1 million. According to Robbie Mitchnick, head of digital assets at BlackRock, his iShares Bitcoin Trust (IBIT) has already processed over $5 billion in such conversions.
"That volume is going to continue to increase as we continue to expand access," Mitchnick told Bloomberg.
Minimums Drop as the Process Becomes More Routine
Bitwise has followed a similar path.
For its first in-kind Bitcoin conversion, a deal of at least $100 million was required to secure support from authorized participants. That threshold later dropped to $50 million and now stands at $3 million.
Bitwise Chief Investment Officer Matt Hougan noted that while the entire process is still handled individually, it is becoming increasingly standardized.
Other issuers report sustained demand growth. At 21Shares, the average size of completed in-kind Bitcoin deals over the last three months has been around $5 million. Morgan Stanley reported that such conversions account for roughly 5% to 7% of assets in its spot Bitcoin ETF, which has about $560 million in assets under management.
The appeal of these transactions goes beyond mere convenience. Investors can reduce reliance on private keys and wallets, and depending on individual tax situations, exchanging Bitcoin instead of selling it for cash may allow them to avoid immediate taxation.
Ether and Solana Join the In-Kind Conversion Trend
This model is also expanding beyond Bitcoin. Grayscale uses in-kind transactions for its Ether-based products, and Bitwise supports conversions for both Ether and Solana.
At Grayscale, this shift has accelerated sharply. In March, 28% of gross Bitcoin creation and 57% of gross Ether creation were done in-kind. By June, those figures had risen to 62% and 63%, respectively.
The remaining obstacle is infrastructure. Transactions still require authorized participants or market makers willing to handle cryptocurrency, which increases cost and complexity.
Nevertheless, the direction is clear. As minimums drop and more intermediaries enter the market, the direct exchange of Bitcoin, Ether, and Solana for ETF shares is evolving from a private banking-style service for 'whales' into a more standardized component of institutional cryptocurrency investing.
