Bitcoin holders can now enter BlackRock’s IBIT ETF with a $1M in-kind swap

Bitcoin holders now have a much lower entry point to move their BTC into BlackRock’s iShares Bitcoin Trust (IBIT) without first selling their coins for cash.

BlackRock has reportedly reduced the minimum size for an in-kind Bitcoin swap from $25 million to $1 million, cutting the previous threshold by 96%. The change could make the process available to a much wider group of wealthy Bitcoin holders and institutions.

Robbie Mitchnick, BlackRock’s head of digital assets, discussed the change on Bloomberg’s ETF IQ on August 10. He also indicated that the firm could lower the threshold further over time.

BlackRock Lowers the IBIT Entry Barrier

The change was highlighted by Bloomberg ETF analyst Eric Balchunas after Mitchnick's appearance.

Previously, investors needed at least $25 million in Bitcoin to use the in-kind conversion route. The new $1 million minimum significantly lowers that barrier.

The process is handled through authorized participants, which are financial institutions responsible for creating and redeeming ETF shares.

Instead of selling Bitcoin for dollars and then purchasing IBIT, an eligible holder can transfer Bitcoin and receive IBIT shares in return. The process can also work in reverse.

That gives large Bitcoin holders another way to gain exposure to the ETF without first going through a traditional spot sale.

How the Bitcoin-to-IBIT Swap Works

The important difference is that the Bitcoin is transferred directly into the ETF structure rather than being sold for cash first.

For example, a holder with $1 million worth of BTC could potentially transfer that Bitcoin through the authorized participant process and receive a corresponding amount of IBIT shares.

The structure can offer several potential advantages, including reduced trading steps and, depending on an investor's circumstances and tax treatment, potential tax benefits.

However, investors should not assume that every in-kind transfer is automatically tax-free. The exact treatment depends on the structure and individual circumstances.

The option is also relatively new for US spot Bitcoin ETFs.

Spot Bitcoin ETFs launched in January 2024 under a cash-based creation and redemption model. The SEC later allowed in-kind creations and redemptions for crypto ETFs, giving funds such as IBIT access to a more direct Bitcoin transfer mechanism.

BlackRock's decision to lower the minimum could therefore help expand the use of this structure.

Bitcoin ETF Demand Remains Strong

The move comes as institutional demand for US spot Bitcoin ETFs remains significant.

US spot Bitcoin ETFs attracted more than $850 million in net inflows last week, according to SoSoValue data cited in the original report. The funds collectively hold tens of billions of dollars worth of Bitcoin.

However, ETF flows remain volatile.

The funds recorded around $145 million in outflows on August 10, showing that investors are still reacting quickly to changes in market conditions.

Bitcoin was trading near $63,600 on Tuesday, adding another layer of uncertainty for investors considering whether to move BTC into an ETF.

Still, BlackRock's decision to lower the in-kind threshold suggests that demand for the ETF structure may be expanding beyond the largest institutional holders.

Could the IBIT Structure Offer Tax Benefits?

One of the biggest reasons the in-kind route is attracting attention is its potential tax treatment.

IBIT operates as a grantor trust, meaning shareholders are generally treated as owning an interest in the underlying Bitcoin for tax purposes.

For some investors, moving Bitcoin directly into the trust may avoid the immediate taxable sale that could occur if they first sold BTC for cash.

Crypto tax specialist Clinton Donnelly has argued that an in-kind Bitcoin contribution to IBIT can potentially be treated as non-taxable, with the investor's cost basis and holding period carrying over. However, this interpretation has not been formally confirmed by the IRS for every possible situation.

Balchunas later provided additional clarification on X, stressing that the potential tax benefit is a deferral rather than a way to permanently avoid tax. The original Bitcoin cost basis carries over to the ETF shares, meaning the tax liability can arise when those shares are eventually sold.

This distinction is important. Investors should not interpret an in-kind conversion as automatically tax-free in every circumstance.

Anyone considering the strategy should speak with a qualified tax professional about their specific situation.

Why This Matters for Bitcoin Holders

The lower threshold could make IBIT more attractive to large Bitcoin holders who want exposure through a regulated ETF without completely exiting their BTC position.

It also creates a potential bridge between self-custodied Bitcoin and traditional financial markets.

Instead of choosing between holding Bitcoin directly and holding an ETF, eligible investors may have another option: moving BTC into an institutional investment vehicle without first converting it into cash.

This could become increasingly important as Bitcoin ETFs become a larger part of the traditional investment market.

BlackRock's willingness to lower the minimum also suggests that the company wants to make the process more accessible.

If the threshold falls further, more high-net-worth investors and institutions could potentially use the mechanism.

Bitcoin Self-Custody Concerns Add to ETF Demand

The development also comes at a time when some Bitcoin holders are facing renewed concerns about self-custody.

Recent reports of a major Coldcard wallet exploit involving millions of dollars worth of Bitcoin have highlighted the risks associated with holding digital assets directly.

For investors who are uncomfortable managing private keys, a regulated Bitcoin ETF can provide a simpler way to gain exposure to BTC.

That does not mean ETF ownership is risk-free. Investors still face Bitcoin price volatility, market risk and ETF-related risks.

However, the combination of easier institutional access and growing concerns around self-custody could support continued demand for regulated Bitcoin investment products.

What This Means for IBIT and Bitcoin

BlackRock's decision to reduce the minimum in-kind Bitcoin swap from $25 million to $1 million is more than a simple change in the entry requirement.

It potentially brings the IBIT structure within reach of a much larger group of wealthy Bitcoin holders and institutions.

The development also strengthens the connection between traditional finance and Bitcoin. As more investors look for regulated ways to hold BTC, products such as IBIT could become increasingly important.

For Bitcoin holders, the key attraction is the ability to move BTC into the ETF structure without necessarily selling it for cash first. The potential tax advantages could make the option even more interesting, although investors need professional advice before relying on any specific tax treatment.

For now, the most important development is the lower threshold. If BlackRock continues reducing the minimum, more Bitcoin could potentially move from private wallets into regulated ETF products, further increasing the role of institutions in the Bitcoin market.