The mechanism. In July 2025, the SEC let spot bitcoin and ether ETFs do what every gold and commodity ETF has always done: create and redeem shares in-kind, meaning authorized participants (APs) hand over actual bitcoin instead of cash. Under the cash-only regime the SEC originally imposed in January 2024, every creation or redemption required an intermediary to convert cash to BTC and back — a job Coinbase, as custodian to the majority of spot bitcoin ETF assets, was uniquely positioned to sell alongside its custody mandate. That conversion/execution layer is a toll booth. In-kind flows let APs source bitcoin themselves or via a custodian of their choosing, bypassing Coinbase's cash-conversion desk entirely. The SEC's move was already made; the money now moves as issuers finish building the plumbing through 2026, and every basis point of friction that disappears from the AP workflow is a basis point Coinbase can no longer bill.
Who cashes in. BlackRock (BLK) captures the win twice over — IBIT is its single largest revenue-generating ETF, and cheaper, tax-efficient in-kind mechanics make it more attractive to institutional allocators who were previously boxed out by cash-creation's forced taxable events, growing the asset base BlackRock charges its expense ratio on regardless of who custodies the coins. Fidelity (FNF-adjacent, private but instructive) already self-custodies FBTC's bitcoin through Fidelity Digital Assets rather than paying Coinbase — in-kind creation reinforces the case for issuers to bring custody in-house, a template Block (XYZ), which is building out its own bitcoin infrastructure and Cash App custody rails, is positioned to benefit from as the "custody doesn't have to run through Coinbase" thesis spreads.