As I understood with in cash, if a large shareholder want to sell a lot of shares in the ETF, such that he cannot see the share on the open market without crushing the price, the ETF issuer is forced to exchange the share for USD equivalent. With in kind the isssuer could have the possibility to give you real BTC to the large seller, thus this would give more stability to the ETF price and less impact the BTC price (or with a delay if the seller intend to sell the BTC afterward).

I would think that in kind is better for BTC and it was the prefered option for Blackrock and the others but for some reason the SEC force in cash. However I have limited knowledge in this to fully ubderstand the pro and cons of each option.