Wall Street is making it easier for large bitcoin holders to move from self-custody to exchange-traded funds: investors can exchange the first cryptocurrency directly for ETF shares without selling it for cash, Bloomberg writes. The in-kind creation mechanism is becoming more accessible and standardized, with BlackRock already processing over $5 billion in such conversions through its bitcoin ETF IBIT.
BlackRock Lowers the Minimum Transaction Amount
Not long ago, such deals were primarily custom solutions for the largest investors. However, after U.S. regulators approved ETF creation via the in-kind mechanism, the practice began to spread in the market.
In July, BlackRock lowered the minimum size of such an operation from $25 million to $1 million. The investor transfers bitcoin to the fund and receives its shares in return. An authorized participant or market maker facilitates the transaction.
This offers several advantages to large cryptocurrency holders:
- No need to self-custody private keys and crypto wallets;
- The asset transitions into a traditional financial product structure;
- The investor maintains exposure to bitcoin;
- Exchanging cryptocurrency for an ETF may potentially allow the investor to avoid an immediate taxable event that would arise from selling bitcoin for cash, depending on the investor's circumstances.
Demand for this service is also driven by risks associated with holding large crypto fortunes, including theft, hacks, and issues with custodial services.
"This will continue to grow because we continue to expand access. People see what's happening in the outside world—hijackings, ransoms, storage issues—and that motivates them to move all or part of their assets," said BlackRock's Head of Digital Assets, Robbie Mitchnick.
Over $5 Billion Converted to ETF via IBIT
Amid a resurgence in crypto market demand, interest in this mechanism is intensifying. Bitcoin surpassed $79,000 last week, while U.S. spot ETFs recorded their largest weekly inflow of $1.92 billion in 2026. Collectively, bitcoin and Ethereum ETFs attracted $2.62 billion.
According to Mitchnick, over $5 billion in conversions of the first cryptocurrency into fund shares have already been processed through IBIT—the largest U.S. spot bitcoin ETF. For comparison, this figure was over $3 billion in October of last year.
However, the process is not yet fully automated. It can take over a week and requires the involvement of market makers and authorized participants.
At Bitwise, the initial minimum transaction size was $100 million. It was later lowered to $50 million and now stands at around $3 million.
"The entire process is still bespoke—from the client meeting the market maker to working with the advisor—but it is becoming more standardized," said Bitwise Chief Investment Officer Matt Hougan.
He stated that operations used to be slow, whereas now they resemble an "assembly line," and in the future, they could become essentially a one-click operation.
Mechanism Expands to Ethereum and Solana
In-kind conversions are gradually expanding beyond bitcoin. Grayscale and VanEck use them for Ethereum-based products, and Bitwise conducts such operations with Ethereum and Solana as well.
At Grayscale, the share of gross ETF creations processed via the corresponding mechanism has increased significantly over several months. In March, it was 28% for bitcoin products and 57% for Ethereum; by June, it was 62% and 63%, respectively.
At Morgan Stanley, in-kind conversions constitute about 5-7% of the assets in the spot bitcoin ETF MSBT, which has a volume of approximately $560 million. Meanwhile, at 21Shares, the average size of completed operations over the past three months was about $5 million.
The main limitation remains infrastructure: operations require intermediaries willing to work directly with cryptocurrency. However, as the number of such participants increases, minimum amounts could drop further, opening the mechanism to an ever-wider range of large investors.
"Today, this crypto-native use case is in full swing. We're also increasingly seeing ETF market makers utilize the in-kind opportunity, returning to the original and often more efficient way of operating ETPs," noted Grayscale's Head of Trading and Capital Markets, Christa Lynch.
Recall that Wintermute assessed the prospects for further bitcoin growth.
end-content
