In-kind creation and redemption means issuing and redeeming shares in exchange for the underlying assets themselves rather than their cash value. For a bitcoin product, that asset is bitcoin. An Authorized participant, or AP, deals directly with the product: a financial institution contractually authorised to perform these operations. It supplies the required assets for new shares, or returns shares to receive assets. The particular product sets the quantity and delivery arrangements.
On July 29, 2025, the US Securities and Exchange Commission, SEC, permitted this process for exchange-traded crypto products, known as ETPs. APs could use underlying assets as well as the previously required cash route. Picture an eligible participant delivering bitcoin it already holds instead of money to buy bitcoin. Approval alone does not mean every product and every AP actually operates both routes. A particular exchange still depends on the product’s current rules and the participants’ operational readiness. [1]
Imagine Jana buying on an exchange alongside an AP dealing directly with the product. In creation, the AP delivers the specified group of assets, called a basket, and receives new shares. In redemption, it returns the required block of shares and receives the corresponding assets; the returned shares are cancelled. Jana, by contrast, can sell an existing share to another investor. The money she receives is not the result of her own in-kind redemption. Her sale simply changes the shareholder in the secondary market, meaning trading between investors. [3]
The prospectus for iShares Bitcoin Trust ETF, known as IBIT, uses Basket Bitcoin Amount for the bitcoin quantity required for a given basket. It is based on NAV, net asset value per share, the shares in a basket and a reference bitcoin price, called a benchmark. Our illustration uses hypothetical prices: USD 50 × 40,000 shares / USD 100,000 per BTC = 20 BTC. Two identical baskets would mean 40 BTC for 80,000 shares. This is not a permanently fixed delivery amount. A real operation uses the current basket, which also reflects reductions in assets caused by expenses. [2]
In-kind tells you what is delivered, not who holds the private keys: the information that allows bitcoin spending to be authorised. For creation, the cited IBIT prospectus describes a credit to the Trading Balance at the Prime Execution Agent, the trading-service provider. This step is off-chain: its internal records change without a separate entry on Bitcoin’s blockchain. For redemption, the prospectus describes an on-chain transfer from the Vault Balance, the custody balance, to the trading balance, followed by delivery to the account of the AP or its designated agent or client. In-kind therefore guarantees neither self-custody nor a separate blockchain transaction for each share. [2]
Stay with our illustrative 20 BTC. The AP might already have them in inventory, or buy them in advance. When it contributes them for shares, the product need not itself buy bitcoin for cash at that step. But that does not mean no bitcoin trading took place elsewhere. Similarly, the recipient of a redemption can keep the BTC received or sell them later. An in-kind flow record alone cannot establish that a new market purchase or sale occurred at that very moment. [3]
Suppose the required delivery is 20 BTC. If a network fee of 0.0001 BTC is deducted from the amount being sent, the recipient gets only 19.9999 BTC. The delivery is still short by 0.0001 BTC. This is our own example, not an IBIT fee schedule. It shows why paying the fee on top and deducting it from the delivery are different. A “sent” notification does not replace checking the amount credited to the recipient and whether the agreed terms have been met. [2]
An accepted order is not completed settlement: the actual delivery of the agreed assets and shares. When bitcoin is not delivered on time, the cited IBIT prospectus describes cancellation, a trustee-approved delay, or a replacement bitcoin purchase by the trust funded by the AP in USD. Under the described rules, the AP bears the associated costs and an adverse difference between the reference price used and the actual purchase price. What began as an intended bitcoin delivery can become a need to obtain cash quickly. The in-kind label does not remove that risk. [2]
The approval aims to make the product work more efficiently, not to promise free trading. The IBIT prospectus still provides for transaction and custody fees. A particular operation therefore requires checking the applicable basket, AP eligibility, recipient account, final credit and costs. In-kind does not guarantee a zero spread, the difference between buying and selling prices, or uninterrupted redemption. For Jana, the important distinction remains: a product share is not bitcoin controlled by her keys. Holding the share does not itself entitle her to demand delivery of BTC. [1] [2]
For the clearest picture, read this entry together with ETF creation and redemption, Cash creation model, Authorized participant, Net asset value. The reverse links also lead from ETF creation and redemption, Cash creation model, U.S. spot Bitcoin ETP approval.