Security concerns regarding self-custody are increasingly driving Bitcoin holders toward institutional custody options, with BlackRock facilitating more than $5 billion in Bitcoin-for-ETF-share swaps from private wallets into its iShares Bitcoin Trust (IBIT).
The movement follows BlackRock's decision in July to lower the minimum size for in-kind transactions from $25 million to $1 million. According to Robbie Mitchnick, BlackRock's head of digital assets, the total volume for these conversions has surpassed $5 billion, up from over $3 billion reported last October. The process can take more than a week to complete, and inquiries are arriving from clients both inside and outside the United States.
Mitchnick attributed the growth to security incidents such as kidnappings, ransom situations, and custody failures, which motivate holders to switch to regulated ETF structures for all or part of their holdings. Additionally, swapping Bitcoin for ETF shares often allows holders to avoid triggering an immediate capital gains tax bill because the cryptocurrency is exchanged rather than sold outright.
Other financial institutions have similarly adjusted their requirements. Bitwise reduced its in-kind minimum from $100 million at launch to $50 million, and subsequently to $3 million. At Morgan Stanley, in-kind conversions account for an estimated 5% to 7% of its roughly $560 million MSBT fund. Meanwhile, 21Shares has averaged approximately $5 million per in-kind transaction over the past three months.
The mechanism has also expanded beyond Bitcoin. Grayscale and VanEck now process in-kind trades for Ethereum, while Bitwise handles them for both Ethereum and Solana. At Grayscale, in-kind trades account for 62% of gross Bitcoin creations and 63% of Ethereum creations.
Despite the growth, backend bottlenecks remain. Every in-kind trade must pass through an authorized participant or market maker willing to take custody of the cryptocurrency, which adds costs. However, issuers expect minimum investment thresholds to continue declining as more intermediaries build out their capacity.
