BlackRock cuts bitcoin ETF swap minimum to $1 million as crime rises

Wall Street is pulling bitcoin whales out of self-custody, with BlackRock cutting its ETF swap minimum to $1 million from $25 million.

BlackRock cut the minimum for swapping bitcoin into its spot ETF to $1 million from $25 million, as large holders move coins out of self-custody.

"People see things happen in the outside world — whether it's kidnappings, ransom, custody failures — that motivate them to make this switch for all or some of their holdings," Robbie Mitchnick, head of digital assets at BlackRock, said.

The iShares Bitcoin Trust has processed more than $5 billion of such conversions, up from $3 billion in October, according to Mitchnick. Bitwise cut its threshold to $3 million from $100 million, while Morgan Stanley's spot bitcoin ETF MSBT holds 5-7% of its roughly $560 million in assets via in-kind conversions, Ally Wallace, global head of ETFs at Morgan Stanley Investment Management, said.

The shift marks the first decline in self-custody balances in roughly 15 years, even as individuals still hold about 13.83 million BTC — 65.9% of supply — per a River Financial report. Hardware wallet exploits in August caused $116 million to $130 million in losses, adding weight to the move into regulated custody. Bitcoin briefly topped $80,000 this week as the rally extended.

How the in-kind swap works

The process lets authorized participants deliver bitcoin directly to a fund's custodian in exchange for newly created shares, with no cash changing hands and no taxable sale event. The holder keeps the same dollar exposure to bitcoin but shifts the legal wrapper from a private wallet to a regulated fund structure.

The appeal extends beyond tax efficiency. Estate planning is simpler when inheritance involves brokerage shares rather than hardware wallets and seed phrases. ETF shares can sit alongside stocks and bonds in a single portfolio and be pledged as collateral for conventional loans — liquidity that self-custodied bitcoin generally cannot offer through most banks.

The migration is spreading beyond bitcoin

Grayscale and VanEck now run in-kind transactions for ether, and Bitwise does so for ether and Solana. At Grayscale, in-kind processing of gross bitcoin creations rose to 62% in June from 28% in March, while ether climbed to 63% from 57%, Krista Lynch, the firm's head of trading and capital markets, said. At 21shares, completed in-kind transactions over the past three months averaged about $5 million, Alistair Perry, head of capital markets, said.

The remaining constraint is plumbing. Transactions must pass through an authorized participant or market maker willing to handle crypto, adding costs that explain why minimums remain high. Bitwise's first in-kind deal required $100 million to secure support; the threshold fell to $50 million and now sits at $3 million, chief investment officer Matt Hougan said.

The tax-neutral nature of the swaps creates a self-reinforcing incentive: each whale who migrates without a capital-gains bill becomes a reference case for the next. The $5 billion that has moved through IBIT looks less like a peak and more like an early chapter as the process becomes standard practice on Wall Street.

This article is for informational purposes only and does not constitute investment advice.