Grayscale is evaluating the possible tax consequences associated with spot Bitcoin (BTC) exchange-trade funds (ETF), prompted by inaccurate reports circulating about unfavorable tax implications.
In a series of posts on X (formerly Twitter), Grayscale clarifies that retail investors of the Grayscale Bitcoin Trust (GBTC) are not expected to incur tax implications when the fund sells Bitcoin to generate cash for meeting share redemptions.
As we work to obtain the appropriate regulatory approvals to uplist $GBTC to NYSE Arca, we’re considering the potential tax implications for spot Bitcoin ETFs needing to sell $BTC holdings for cash to fulfill share redemptions.
Here’s why we’re talking about this now. (1/7)
— Grayscale (@Grayscale) December 15, 2023
This is because GBTC is structured as a grantor trust, signifying that the entity establishing the trust is regarded as the proprietor of the assets and property for income and estate tax considerations.
“Cash redemptions of grantor trusts are not taxable events for non-redeeming shareholders like retail investors,” the post stated, while explaining its difference to mutual funds:
“Unlike mutual funds and many other ETFs, substantially all spot commodity ETFs (e.g., gold) are structured to be grantor trusts for tax purposes. We take the position that GBTC is properly treated as a grantor trust.”
This follows recent reports indicating that the United States Securities and Exchange Commission (SEC) held another meeting with Grayscale to delve discuss spot Bitcoin ETF.
On December 8, Cointelegraph reported that Grayscale and Franklin Templeton sat down with the SEC to review their applications, only a day after representatives from Fidelity appeared before the SEC.
Meanwhile, just days before, on December 5, the SEC pushed back the decision on Grayscale spot Ethereum ETF. This was pushed back until January 24, 2024.