Grayscale Explains Spot Bitcoin ETF Tax Structure; What This Means

Amid widespread expectations on the approval of spot Bitcoin ETF filings by the U.S. Securities and Exchange Commission (SEC), Grayscale cleared the confusion around the tax implications for Bitcoin Trust (GBTC) shareholders.

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GBTC Conversion & Tax Implications

Earlier, a Bloomberg Intelligence report claimed Grayscale may have to buy and sell Bitcoin (BTC) for the ETF creations and redemptions. The buying and selling is taxable and could complicate the GBTC conversion into spot ETF, it explained. However, the company clarified that the spot commodity ETFs are generally structured to be grantor trusts for tax purposes. Essentially, capital gains tax is not applicable for grantor trusts, it added.

“No such spot commodity ETF that is a grantor trust would be at a disadvantage relative to any other spot commodity ETF because of the carrying value of the ETF’s assets.”

Meanwhile, it appears that the SEC is considering the same Grayscale filing for conversion of GBTC into a spot Bitcoin ETF. On August 29, 2023, US Court of Appeals for the District of Columbia Circuit ruled in favor of Grayscale’s petition for review of the Commission’s decision to deny the approval. Although the judgment did not directly order for the conversion of GBTC, it paved a way for approval in a set timeline.

Approval In The Making?

In the space of last two weeks, companies seeking spot Bitcoin ETF approval like Blackrock, Grayscale, Franklin Templeton and Fidelity have held meetings with the officials at the US SEC. In a latest, Bloomberg Intelligence analyst James Seyffart said the Blackrock representatives held deliberations with the SEC yet again, on December 14, 2023. Does this mean the SEC is targeting the next available window of opportunity between January 6-10, 2023 for approval of the first ever spot Bitcoin ETF in the United States?

Meanwhile, the Bitcoin (BTC) price is currently trading at its highest range in around 15 months, in likely anticipation of institutional money flow thanks to the spot ETF and the Bitcoin Halving event scheduled for the second quarter of 2024.

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