BlackRock has recorded a $3.6 billion IBIT physical conversion: security considerations have become the main driver

According to Barron's, Robbie Mitchnick, head of BlackRock's digital asset business, stated that since regulators approved the physical creation and redemption of crypto assets last year, the company has recorded approximately $3.6 billion in physical conversions of directly held Bitcoin into shares of its spot Bitcoin ETF, IBIT. Since BlackRock does not handle all transactions itself and may not see every conversion, the actual scale may be larger.

BlackRock also provides physical conversions for the iShares Ethereum Trust ETF and the iShares Staked Ethereum Trust ETF, but the related scale is much smaller than IBIT. Mitchnick noted that demand continues to rise, and this is currently the highest level of interest the company has seen, which does not change with Bitcoin price fluctuations. The primary motivation is security and peace of mind. Outsourcing custody to an institutional-grade cold storage model is more attractive for holders; holding ETF shares managed by large fund managers is generally seen as less risky than placing assets on crypto trading platforms or in always-online hot wallets.

He mentioned that the recent hacking incident at Binance has once again highlighted the risks of trading platforms, although large Bitcoin holders have long understood these risks. The minimum threshold for physical conversions has been reduced from the initial approximately $30 million to about $1 million to $2 million, with the threshold set by intermediary firms facilitating the transactions, such as Galaxy Digital, Talos, and Virtu. Mitchnick expressed hope that the threshold could be lowered to a single ETF share, but the cost structure is unlikely to drop to zero in the short term.