Grayscale Clarifies Investor Tax Implications of a Cash-Created Spot Bitcoin ETF

Grayscale, one of the biggest cryptocurrency asset management firms, has addressed the issue of taxation regarding the adoption of a cash creation model in an upcoming spot bitcoin exchange-traded fund (ETF). The firm clarified that “no spot Bitcoin ETF that qualifies as a grantor trust would be at a disadvantage in relation to any other spot Bitcoin ETF” regarding cash redemptions.

Grayscale Clarifies Cash-Created Spot Bitcoin ETF Tax Controversies

Grayscale, one of the world’s largest cryptocurrency asset management firms, clarified the potential tax implications of applying a cash redemption model for an upcoming spot bitcoin ETF product.

In a recent article, the firm explained how the cash redemption process would work in a spot bitcoin ETF, with only qualified investors operating to create shares in the primary market, having no relation with the secondary market where retail investors would acquire already existent ETF shares. Grayscale explained that the tax rules applying to spot bitcoin ETFs — most of which are classified as grantor trusts — are different from the ones concerning mutual funds.

As a consequence, Grayscale stated:

No spot bitcoin ETF that qualifies as a grantor trust would be at a disadvantage in relation to any other spot bitcoin ETF with respect to cash redemptions due to the carrying value of the assets in the ETF.

Grayscale’s asseverations come to correct earlier statements made in an article published by Bloomberg Intelligence, where it was reported that using cash for the creation and redemption of shares could complicate the conversion of GBTC into a spot bitcoin ETF “because it holds many bitcoin at a low-cost basis that will incur capital gains if sold under a cash-only model, as would be necessary in the event of outflows.”

After having scored a victory in D.C. courts that ordered the U.S. Securities and Exchange Commission (SEC) to revisit its spot bitcoin ETF conversion proposal, Grayscale has met with the SEC various times, which advocates for using the cash creation model instead of the in-kind model preferred by several spot bitcoin ETF issuers.

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