This is how in kind works regardless of the asset. Are there non btc examples where retail can in kind redeem?
Why you can't convert Bitcoin ETF shares into Coins tax-free but you can do the inverse
The one-way valve (coins → ETF shares = easy/tax-efficient; ETF shares → coins = hard/taxable) is not an accident.
https://controlplanecapital.com/p/why-you-cant-convert-bitcoin-etf
Discussion
Yes, that's how it works. The article explains why it works that way.
I am interested in why things work the way they work, not just how they work.
A few reasons that are all made easier with fewer, large, profit motivated authorized participants
1) etf must maintain a nav
2) tracking basis contribution and distribution of in kind assets
3) reporting
4) trading fees
As a centralized product, if etfs allowed anyone to in kind contribute or redeem expenses would go up, accountability to bad actors would go down, reporting would slow down, foot faults would go up.