Grayscale, one of the most prominent cryptocurrency asset management businesses, has tackled the issue of taxation in a planned spot bitcoin exchange-traded fund (ETF).

The company highlighted that “no spot Bitcoin ETF that qualifies as a grantor trust would be at a disadvantage to any other spot Bitcoin ETF” in terms of cash redemptions.

Grayscale Clarifies Cash-Created Bitcoin ETF Tax Issues

Grayscale, one of the world’s leading cryptocurrency asset management organizations, has highlighted the potential tax consequences of using a cash redemption approach for a planned spot bitcoin ETF product.

In a recent piece, the firm detailed how the cash redemption process would function in a spot bitcoin ETF, with only qualified investors operating to produce shares in the primary market with no relation to the secondary market, where regular investors would acquire already existing ETF shares.

Grayscale explained that the tax laws for spot bitcoin ETFs, the majority of which are categorized as grantor trusts, differ from those for mutual funds.

As a result, Grayscale stated:

Due to the carrying value of the assets in the ETF, no spot bitcoin ETF that qualifies as a grantor trust would be at a disadvantage in comparison to any other spot bitcoin ETF in terms of cash redemptions.

Grayscale’s assertions correct earlier statements made in a Bloomberg Intelligence article, which stated that using cash to create and redeem 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.”

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Grayscale has met with the SEC several times since winning a victory in D.C. courts that ordered the SEC to reconsider its spot bitcoin ETF conversion proposal, which advocates for using the cash creation model rather than the in-kind model preferred by several spot bitcoin ETF issuers.

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