Cash creation model

Imagine an AP seeking new shares. In cash creation it supplies USD, US dollars, and the product arranges the corresponding BTC. The AP need not hold or deliver the bitcoin itself. At iShares Bitcoin Trust ETF, known as IBIT, the trust arranges purchases through a trading counterparty or an agent that executes trades. The trust is the product’s legal structure, whose assets include bitcoin. Paying in money does not turn it into a futures fund, which invests in futures contracts, or a derivative that only pays price differences in cash. [1] [2]

How much money should the AP send? Start with our own model: NAV, net asset value per share after deducting liabilities, is USD 50. A block of 40,000 shares therefore corresponds to USD 2,000,000. At a reference price of USD 100,000 per BTC, the required amount is 20 BTC. The reference price, or benchmark, is used for calculation; it does not promise the actual purchase price. The cited IBIT prospectus therefore distinguishes an initial estimate from the final amount determined after NAV is calculated and the purchase settles. These are illustrative prices, not current quotes or an announced applicable basket. [2]

Stay with those 20 BTC. If they can only be bought at USD 101,000 each, the purchase alone costs USD 2,020,000. Adding our illustrative USD 1,000 fee brings the payment to USD 2,021,000, or USD 21,000 above the original estimate. Someone must cover the difference between the reference and actual prices. The cited IBIT prospectus assigns the adverse difference from the NAV price to the AP and lets the AP retain a favourable difference when the purchase is cheaper. These are this product’s rules, not an automatic arrangement for every fund. [2]

Seeing a product’s annual fee does not necessarily tell an investor what creating new shares costs. The IBIT prospectus separates the per-order transaction fee, including servicing and custody components, from the ongoing sponsor fee, paid to the firm responsible for operating the product. Our USD 1,000 figure is not a fee schedule. Besides fees, the AP may also bear a purchase-price difference. And if a cheaper purchase benefits the AP, that is not automatically a return credited to shareholders. The costs and results of these different roles need to be considered separately. [2]

The cited version of the IBIT prospectus sets the cash creation cutoff at 18:00 ET on the business day before the trade date. ET is US Eastern Time, not every investor’s local time. Submitting an order on time does not mean the product has already received BTC or the AP has received shares. Acceptance, cash receipt, purchase and share delivery are distinct events. Completing the agreed exchange is called settlement. Specific deadlines and holidays follow the product’s rules and can change, so this example is not a universal timetable. [2]

The bitcoin purchase and receipt of the AP’s money need not happen at the same time. IBIT describes possible Trade Credits, short-term bridge borrowing, or earlier AP funding for this situation. The credit pays for the purchase and is later repaid using the cash delivered. It does not guarantee completion. Failure to execute and settle the purchase can result in cancellation or delay under the product’s terms. Cash creation therefore still depends on payments, credit, trading counterparties and functioning custody. [2]

Imagine an order for 40,000 shares cancelled before issuance. Placing the order alone produced neither a completed inflow nor new shares. When reading flow figures, it matters whether they describe a request, shares actually issued or a completed BTC purchase. A sale of an existing share between investors on an exchange is a different event. It changes the shareholder; by itself it increases neither the share count nor the product’s bitcoin holdings. [1]

On July 29, 2025, the US Securities and Exchange Commission, SEC, also permitted in-kind procedures for exchange-traded crypto products: delivering underlying assets instead of money. The cited IBIT prospectus allows both cash and in-kind routes. Their use depends on the product’s rules and participants. Cash creation guarantees neither immediate settlement nor an exchange price exactly equal to NAV; a premium means the share trades above its net asset value per share. Nor does this mechanism itself let an ordinary investor order a single new share directly from the trust. [3] [2]