GrayScale Senior Vice President Speaks Out: The Mystery Behind Bitcoin’s “10 a.m. Dump” and How Crypto ETFs Work
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GrayScale Senior Vice President Speaks Out: The Mystery Behind Bitcoin’s “10 a.m. Dump” and How Crypto ETFs Work
Krista Lynch, Senior Vice President at Grayscale, analyzes the causes behind Bitcoin’s “ten-point dump” and the operational mechanics of Bitcoin ETFs, revealing the NAV calculation logic behind price volatility and the trend toward institutionalization.
Navigating Web3 tides with focused insightsCompiled & Translated by TechFlow
Guest: Krista Lynch (Senior Vice President, Capital Markets, Grayscale Investments)
Host: Bonnie
Original Title: “The Most Skilled ‘Scissors’ on Wall Street?” A Former BlackRock Executive Explains the Truth!
Podcast Source: Bonnie Blockchain
Air Date: May 25, 2026
Editor’s Note
The so-called “10 a.m. dump” in Bitcoin ETFs, on-chain wallet movements, and whales transferring tokens into ETFs are not the “institutional conspiracies” retail investors imagine. Rather, they reflect a new market structure shaped collectively by NAV pricing, authorized participant (AP) creation/redemption, market maker hedging, and physical creation/redemption.
This episode features Krista Lynch, Senior Vice President of ETF Capital Markets at Grayscale Investments, who unpacks how the primary market, secondary market, liquidity providers, authorized participants, and custodians coordinate to keep the ecosystem running smoothly.
In this conversation, Krista Lynch makes “institutionalization” concrete: Bitcoin ETF bid-ask spreads can narrow to just one cent; some ETFs’ premiums/discounts have converged to single-digit basis points; tokenized assets are evolving from stablecoins and equities toward more complex real-world assets (RWAs); and increasingly, large holders are swapping on-chain tokens for ETF shares to gain advantages in tax planning, estate planning, margin eligibility, and collateral use.
Key Quotes
ETF Mechanics and the “10 a.m. Dump”
- “When you see Bitcoin or other tokens moving in or out of our wallets on-chain, many assume Grayscale is actively buying or selling. In reality, we’re simply responding to end-investor demand to execute ETF creations or redemptions and settle them.”
- “ETFs have become barometer-like financial instruments for this asset class—not just speculative vehicles, but tools used by institutions for investment and hedging.”
- “Shorting a Bitcoin ETF doesn’t necessarily mean you believe Bitcoin is doomed—it simply means you’re expressing an investment view via the Bitcoin ETF.”
- “Before GBTC converted to an ETF, it lacked a primary market function. Market makers couldn’t tightly align share price with NAV, resulting in discounts or premiums as high as 10% or even 20%—extremely rare for an ETF.”
Authorized Participants, Market Makers, and Retail Perceptions of “Unfairness”
- “Authorized Participants (APs) serve more of an administrative function. The real drivers of creation/redemption—and the entire mechanism—are ETF market makers.”
- “End investors actually benefit from this efficiency: when you and I buy Bitcoin ETFs, the bid-ask spread is typically just one cent—the narrowest practically achievable level.”
- “ETF inflows/outflows generally move in the same direction as price, but I wouldn’t call either a leading indicator of the other. If anything, ETF flows tend to be a lagging reaction to price changes.”
Tokenization and the Convergence of TradFi/DeFi
- “The dominant theme in my recent conversations is no longer price appreciation—but infrastructure building. That signals industry maturity.”
- “I view stablecoins as tokenized cash—the area where banks and other traditional financial institutions will first establish a firm foothold, before progressing to tokenizing foundational assets like U.S. equities.”
- “In the most advanced world, we might eventually have a global currency—but I don’t expect that to happen soon, given central banks’ legitimate reasons to control and protect their own monetary systems.”
Ethereum Staking, Yield, and Liquidity
- “What differentiates Ethereum products is our implementation of staking—these products genuinely generate yield and deliver staking value to investors.”
- “The hardest part of staking within an ETF isn’t earning yield—it’s that staked assets lose liquidity while the fund must remain ready to fulfill redemptions at any time.”
- “We dynamically determine, using mathematical models, how much un-staked assets to hold in the fund—and coordinate delayed settlement with liquidity providers so investors experience no front-end disruption.”
Whales, Next-Gen ETFs, and Institutionalization
- “What surprised us is how willing whales have become to place tokens into ETFs—converting tokens into shares often unlocks U.S. brokerage account benefits like tax planning, estate planning, margin eligibility, and collateral use.”
- “We’re past the stage of ‘if regulation allows it, we’ll do it.’ We now need to be far more selective about which assets merit an ETF wrapper.”
- “HYPE and BNB are two protocols I’m closely watching.”
- “Bitcoin is becoming more institutionalized—perhaps less thrilling in certain respects, but that also signals maturation and draws in investors who previously watched from the sidelines.”
Opening: Starting with the “10 a.m. Dump”
Bonnie (Host): Welcome to the show. Today, we’re joined by Krista Lynch, Senior Vice President of ETF Capital Markets at Grayscale Investments—a crypto asset management firm—to discuss institutional adoption and the future of tokenization. Krista, welcome—we’re thrilled to have you.
Krista Lynch: Thank you so much for the invitation.
Bonnie: I’m really looking forward to this. Let’s start with the “10 a.m. dump” you mentioned earlier. There’s speculation that Bitcoin drops 2–3% around 10 a.m. daily, followed by retail buying—often tied to APs and ETF issuers. What’s your take?
Krista Lynch: I know there are many such theories circulating on Twitter/X. While I can’t claim to know all underlying drivers, several timing-related factors matter—especially NAV calculation and key pricing times for other financial instruments. For instance, some Bitcoin and digital asset futures fix their value at a set time—say, London time—which corresponds roughly to 10 or 11 a.m. here, matching your timeline.
Another critical time is 4 p.m. ET—the point at which these products calculate NAV—so trading activity surges between 3 and 4 p.m. We frequently clarify market misconceptions, especially around Grayscale products. People see tokens entering or exiting our wallets and assume we’re making active buy/sell decisions—but often, we’re just facilitating settlement. I suspect the “10 a.m. dump” falls into the same category: these timing windows are crucial for valuation and trigger heavy trading, but may lack deeper meaning.
Bonnie: There’s also discussion around ETF flow data. Retail sees inflows/outflows in spot Bitcoin ETFs and declares “institutions are buying” or “institutions are selling.” But many hedging strategies exist. Can you explain?
Krista Lynch: Absolutely. When our Bitcoin or other digital asset ETFs settle, you can see Bitcoin or other tokens enter or exit our wallets on-chain. Many assume Grayscale is making active trading decisions—but we’re driven entirely by end-investor demand. Once investors buy shares, that demand flows to APs, who may initiate creation or redemption.
During creation/redemption, my team buys or sells Bitcoin corresponding to the number of shares created or redeemed. We don’t actively manage the fund or express directional views—we’re market-driven.
Your point about hedging is vital. As ETFs evolve into financial instruments—or barometers for the asset class—they’re no longer just speculative tools but are used for institutional investing and hedging. You can go long—or short. Shorting doesn’t mean you think Bitcoin is finished—it just means you’re expressing a view through the Bitcoin ETF.
GBTC Premiums/Discounts, Primary and Secondary Markets
Bonnie: When I first covered this space, Bitcoin ETFs hadn’t launched yet—Grayscale’s GBTC (Grayscale Bitcoin Trust, later converted to a spot Bitcoin ETF) was the benchmark for institutional adoption of securitized products. Its premium/discount to NAV was widely treated as a market sentiment gauge. Before diving into sentiment, could you explain why premiums/discounts arise?
Krista Lynch: Sure. ETFs trade in two markets simultaneously. Investors like you and me buy/sell ETF shares on the secondary market via brokers like Fidelity or Schwab. But ETFs also trade institutionally in the primary market, where authorized participants collaborate directly with ETF market makers to create new shares—or remove existing ones from the market.
A premium or discount arises when the secondary market price diverges from NAV—the primary market price. Normally, APs—or more precisely, ETF market makers working with APs—keep the secondary market price tightly aligned with NAV.
But pre-ETF, GBTC had no primary market function. So ETF market makers could only access one side of the market—unable to tightly align share price with NAV. Why did the market obsess over this premium/discount? Because it effectively became a sentiment proxy for the probability of our winning the lawsuit to convert GBTC into an ETF. The market knew that once GBTC could convert, the mechanism would operate as designed—and share price would converge to NAV. Every major development triggered sharp narrowing or widening of the premium/discount, reflecting how the market priced news against ETF approval odds.
Bonnie: Yet Bitcoin markets were already highly liquid then—why didn’t arbitrageurs fully eliminate the premium/discount?
Krista Lynch: Now they can. Look at today’s Bitcoin ETFs—their premiums/discounts are typically just single-digit bps, extremely tight. But pre-conversion, GBTC’s premium/discount could hit 10–20%, nearly unimaginable for an ETF. The reason? Arbitrageurs couldn’t access the primary market—only traded on the secondary market. When excess shares flooded the market with no mechanism to retire them, prices inevitably diverged.
Centralized Exchanges, Liquidity Providers, and ETF Creation
Bonnie: What role do centralized exchanges (CEXs) play in this mechanism?
Krista Lynch: They’re vital trading outlets. As I noted, when we receive creation/redemption instructions, we must buy or sell Bitcoin. At Grayscale, we conduct bilateral trades with select trading firms. Some issuers, however, rely on exchanges as alternative liquidity sources.
Ultimately, we refer to these entities as liquidity providers. The dealers we trade with are embedded in this ecosystem. Whether you trade directly with a liquidity provider or access liquidity via an exchange, the system is symbiotic. Liquidity providers may source tokens from exchanges—or supply liquidity themselves—all converging into the ETF’s ultra-tight pricing.
Bonnie: Could you walk us through the process step-by-step? What happens behind the scenes when I buy a spot Bitcoin ETF share?
Krista Lynch: This is my favorite question—and what occupies most of my time. You and other investors buy Bitcoin ETF shares. When demand accumulates, the ETF market maker supplying those shares may become short—i.e., it sold shares to you but doesn’t yet hold them. To cover that short position, it initiates creation.
It partners with an AP—a licensed entity authorized to interact directly with issuers like Grayscale. The market maker packages its short position and routes it through the AP to Grayscale: “I need to create shares to cover my established short.”
My team asks how many shares are needed, converts that into the corresponding Bitcoin amount, purchases that Bitcoin in the market, and uses it to back the new shares. Upon settlement, the market maker receives the shares via the AP—while you’ve already received yours. All this happens behind the scenes. The lifecycle ends when the AP delivers shares to the market maker, which then covers its short. Creations and redemptions occur daily.
Bonnie: Does this take a full day?
Krista Lynch: Settlement typically takes about one day—but the trade itself is lightning-fast: 5–10 minutes. It’s intentionally designed this way. We don’t want APs quoting prices while the market moves sharply—especially in highly liquid markets where a single headline can cause volatility—so execution is deliberately rapid.
Bonnie: One follow-up: Earlier discussions suggested some APs double as liquidity providers.
Krista Lynch: That’s accurate.
More precisely, APs are technically U.S. broker-dealers. Many mistakenly believe APs drive creation/redemption decisions—but they’re largely administrative. The real brains are ETF market makers.
Many large ETF market makers house crypto trading enterprises internally. So we frequently see market makers route orders through APs—and when I go to buy Bitcoin, their crypto trading desk often wins that trade. This is intentional risk compression: if you’re hedging a trade and hold ETF shares, matching your Bitcoin exposure helps consolidate risk.
Bonnie: But can you understand why retail feels this is “unfair”? They think you’re the smart money—and they can’t compete.
Krista Lynch: I do understand—but my counterpoint is that end investors benefit directly from this efficiency. When you and I buy Bitcoin ETFs, the bid-ask spread is typically just one cent—the narrowest practically possible, i.e., single-digit basis points.
This tight pricing exists because ETF market makers achieve such efficiency. You and I can’t access the primary market—and many theories originate from that exclusion. Yet we still benefit: APs transact massive volumes, while most of us won’t trade at that scale—but enjoy the ultra-narrow spreads they enable. It’s an ecosystem where all parties aim for optimal outcomes. These theories have roots—but I hope I’ve clarified them.
Tokenization Growth Amid Price Declines
Bonnie: Grayscale Research reported negative returns across six crypto sectors—including on-chain finance and ETFs—in Q1 and Q2. Meanwhile, tokenization volume surged 245%. How do you interpret this inverse trend?
Krista Lynch: The dominant theme in my recent conversations is infrastructure build—not price appreciation. That reflects industry maturity. We’re no longer debating whether a token will 10x in weeks or months—we’re discussing what real infrastructure we’re building on blockchain.
To me, that determines what’s ultimately possible. We talk about banks adopting stablecoins, tokenizing assets for 24/7 trading, and bringing digital asset principles into mainstream U.S. markets. So even as prices dip in certain phases, immense progress unfolds behind the scenes—truly realizing blockchain’s promise.
Bonnie: Grayscale Research’s six crypto sectors include currencies, smart contract platforms, financials, consumer, AI, and utilities/services. Which sectors hold the greatest growth potential for the rest of this year?
Krista Lynch: I’m more token-agnostic than many. Personally, picking individual tokens—or even sectors—is extremely difficult. So I prefer index products that bundle multiple assets. We offer a product covering the top five market-cap-weighted tokens—excluding meme coins and stablecoins. Our analysis shows it captures ~90% of the broader crypto market’s returns.
Some prefer picking tokens or sectors—but I don’t pick stocks that way either. I buy the S&P 500. To me, this product is crypto’s S&P 500 analogue—and how I invest.
Larry Fink’s “Tokenize Everything” and Global Currency Questions
Bonnie: I’d like your response to comments by your former boss Larry Fink (BlackRock CEO) on tokenization. He said we’re only in the early innings of tokenizing all assets—from real estate and equities to bonds. BlackRock envisions $10 trillion in tokenized assets. More broadly—why do we need “tokenizing everything”?
Krista Lynch: I don’t disagree—especially with his point about being in very early innings. Here, at this conference, a recurring theme is TradFi/DeFi convergence. We’re wearing suits at Consensus—a scenario I never imagined years ago.
To me, tokenization extends that trend. As discussed, I view stablecoins as tokenized cash—the area where banks and other traditional institutions will first gain footing—before advancing to tokenizing foundational assets like U.S. equities.
There, you gain digital asset benefits: 24/7 trading, instant settlement, and borderless investment. If I’m overseas but want to buy a U.S. stock, tokenization makes that truly feasible.
Of course, some argue this isn’t novel or transformative. Real estate, for example, presents a vastly different application. I believe tokenizing assets like real estate will take many years to reach mainstream adoption—and won’t be the near-term focus. But yes, we’ll get there—step by step: starting with cash, then equities, then more sophisticated underlying assets.
Bonnie: Nations sometimes restrict capital flows and currency movement. How might tokenization change this?
Krista Lynch: Last night, I spoke with a payments industry practitioner about this. Tokenization may threaten existing national systems in certain ways. You already see rules governing “who can invest in what” among tokenized products—even in the U.S., we can’t necessarily invest in all tokenized representations of U.S. stocks.
I believe nations will implement protective mechanisms to preserve some centrality in their monetary systems. But Bitcoin has already breached some barriers—it’s inherently a global currency. So regulation is essential to define what can/can’t be built regionally—giving industry confidence to proceed.
Bonnie: One final follow-up: Looking back 20 years from now, what might have changed?
Krista Lynch: Honestly, that depends on geopolitics. What will nations accept or permit? In the most advanced world, we’d have a global currency—but I don’t foresee that happening soon. Central banks have legitimate reasons to control and protect their monetary systems—so widespread adoption of any single currency seems unlikely in the near term.
That said, I do expect more FX trading around these assets. We’re already seeing certain pairs—e.g., Bitcoin/USD, Bitcoin/other currencies. I envision a more globalized currency system emerging—and greater FX trading demand arising to bridge it with nations retaining sovereign currencies.
RWAs, Tokenized Equities, and “Who Really Owns the Asset?”
Bonnie: Let’s revisit tokenized real assets. Many RWA projects promise individual investors ownership rights—e.g., a Stradivarius violin tokenized, with fractional owners holding voting rights on usage or performance.
How does this map to equities? How does ownership work in stocks? Say “Christa Lynch Co.” issues 100 shares. Bonnie owns all 100—making her the largest shareholder. Now each share splits into 100 tokenized units—I hold some. Who owns the company?
Krista Lynch: This mirrors ETF challenges—my core domain. The crux is ownership rights vs. voting rights. ETFs face similar questions: if I hold an ETF holding 500 S&P 500 stocks, can I vote on governance of any one underlying stock? The dilemma is identical for tokenized equities.
Another issue: in a tokenized representation, do you own the underlying stock—or merely an IOU? These are regulatory questions we’re grappling with now: who owns what, and who holds what rights?
We can draw lessons from U.S. ETFs vs. European ETNs or ETPs. In some European products, you hold claims on the issuer—not the underlying asset itself. I study how traditional assets handle analogous issues elsewhere. We spend significant time analyzing traditional finance parallels to guide digital asset evolution.
So I won’t be surprised by more roundtables and thought leadership exploring real cases—helping the industry find paths forward and establish clear rules.
Bonnie: What’s your personal view? How should it be designed?
Krista Lynch: Excellent question. I haven’t done enough research to form a firm stance—it’s deeply tied to product mechanics. If you hold directly on-chain, you arguably have stronger grounds for decision-making authority and discretion.
But if you use another system—e.g., stocks held by large institutions while you hold an IOU—it resembles the ETF model I described. For administrative purposes, the entity tokenizing and issuing your IOU may rightly retain more discretion.
TSMC, ADRs, and Wrapper Pricing Divergence
Bonnie: One quick question: TSMC (Taiwan Semiconductor Manufacturing Company), one of Taiwan’s largest firms, trades in the U.S. under ticker TSM. If I hold TSM, do I own part of the company? How does it work?
Krista Lynch: It depends on how it entered the U.S. market. A common structure is the ADR (American Depositary Receipt)—used to bring foreign stocks to the U.S. or U.S. stocks abroad. Specifics depend on the product structure—I’d need to review the prospectus or related documents. My guess is you may not own the underlying stock—but you might. The devil’s in the details.
This is another “wrapper” example. ETFs are wrappers. Tokens are wrappers. ADRs are wrappers. All are subjects of our study—how these structures operate today in U.S. and global finance, and how we digitize them. Case studies already exist.
Bonnie: Do these wrappers track underlying assets? Sometimes they trade quite differently—for example, a U.S. ADR rises 15% while the local stock rises only 10%. I’d like to understand this, as I hold both.
Krista Lynch: If a wrapper functions as designed, it should match the underlying asset one-to-one. This circles back to our GBTC example: premiums/discounts arise when the mechanism fails—e.g., inability to access the primary market—causing price misalignment.
Regarding your case, differing market hours—and extended holidays in some Asian countries—likely explain the gap. When local markets close, U.S.-listed products become venues for investors to express views—even if Asian markets are shut.
Grayscale’s Low-Fee Products, ETH Products, and Staking Yield
Bonnie: As of April 1, U.S. Bitcoin ETFs recorded $173.7M net outflows. Yet Grayscale’s low-fee Bitcoin ETF attracted $10.25M inflows. How did Grayscale achieve this逆势?
Krista Lynch: We’re thrilled to see this—and conducted extensive research. We believe our status as one of the lowest-cost tools attracts a stickier investor base. Many investors aren’t chasing short-term flows—but hold genuine conviction in the asset class and intend long-term holdings.
Thus, they’re less sensitive to short-term news and stay invested. So even as competitors see outflows, we often retain our investors.
Bonnie: Is your investor profile different?
Krista Lynch: Possibly. Our investors lean toward long-hold, digital asset- and Bitcoin-believers—not risk-on/risk-off traders. The latter may make ultra-short-term calls—e.g., capturing value in the next 5 minutes—establishing transient exposures. Such flows are volatile—not necessarily long-term investors. Lower fees attract those seeking longevity.
Bonnie: Ethereum ETFs saw $769M quarterly outflows in Q1—the worst three months since launch. Yet Grayscale’s ETHE or ETH products—charging a relatively high 2.5% fee—still attracted inflows. What does this say about institutional demand?
Krista Lynch: A key differentiator was our implementation of staking. Our Ethereum products generate yield—delivering staking value to investors. For those unfamiliar, staking involves committing assets to protocol operations and earning rewards in the same asset.
The real challenge is liquidity. Staked assets are illiquid. If the fund must fulfill redemptions—i.e., sell Ethereum to provide cash to APs—I can’t always use staked assets. So we built a robust framework to measure required liquidity, stakable assets, and monitor continuously.
We submitted our model to the SEC for review. Preparation took months—implementation finally occurred late last October. This differentiation matters: one ETH product pays cash distributions; another reinvests rewards for compounding. This likely explains why investors stayed during outflow periods.
Bonnie: Regarding yield: Wall Street is debating whether banks can pay yields in stablecoins. Could Grayscale or peers design stablecoin derivatives embedding native yield? That would be highly attractive.
Krista Lynch: We already deliver yield via covered call strategies—using options overlays on Bitcoin and Ethereum positions. Beyond delivering staking via ETFs across multiple protocols, we can also engineer yield through synthetic products using options overlays.
Bonnie: One final related question: Which tokens on Grayscale’s expanded watchlist might receive ETF wrappers this year?
Krista Lynch: You mean ETF wrappers. We have several active filings. I won’t detail further—but HYPE (Hyperliquid’s ecosystem token) and BNB (Binance’s ecosystem token) are two protocols I’m watching closely.
How Grayscale Selects Its Next Batch of ETF Assets
Bonnie: How do you decide which assets to select?
Krista Lynch: At one time, regulation dictated this. First Bitcoin, then Ethereum, became available. Later, filings exploded—SEC faced ~90 applications. They established generic listing standards, helping issuers assess whether a token qualifies for ETP status.
These standards now cover ~15 tokens—and the list grows. This brings us to a crossroads: we must now be more selective. Past logic was “if we can, we will”—but now we add judgment: “should we?”
We currently offer ETFs for 8 tokens—with more coming soon. To answer your question: our research team conducts deep diligence on protocols—meets teams, spends years understanding them, forms investment theses, builds relationships. On top of “can we legally,” they layer “should we ethically/strategically.” We partner closely with research to shape investment views and advance specific protocols.
Bonnie: You mentioned BNB and HYPE. HYPE lacks VC backing—would that factor in? BNB is also highly decentralized. Would you avoid tokens with concentrated whale holdings?
Krista Lynch: Not necessarily. Whales are fascinating for ETFs. Recently, we’ve been surprised by whales’ growing interest in placing tokens into ETFs. We’d assumed crypto-native participants might resist entering U.S. finance via ETFs.
But ETFs are attractive because converting tokens to shares unlocks tax planning, estate planning, and other U.S. brokerage benefits. Shares are often eligible for margin and collateral—also compelling. So we’re seeing whales seek ETFs to access these features.
Bonnie: Could you detail how this works? Suppose I’m a whale holding a token and approach you to convert it to ETF shares.
Krista Lynch: Broadly, yes. Behind the scenes, many steps occur—but my team directly engages whales. We work with AP partners or third-party intermediaries to facilitate in-kind creation—placing tokens into the product.
We previously discussed cash-based creation/redemption. Last summer, the SEC permitted in-kind creation/redemption—opening doors for such investors. Now my team coordinates third parties to transfer tokens from whale accounts into our trust—and issues corresponding shares.
Bonnie: For those unfamiliar: previously, to buy a spot ETF, you’d buy shares on the market; now you can directly hand your tokens to us.
Krista Lynch: Exactly.
Bonnie Blockchain: You said this change happened last year?
Krista Lynch: Yes. You’re now accessing the primary market. As noted, the primary market is nearly inaccessible to retail due to AP requirements—but some savvy APs have opened collaboration pathways for individuals.
ETF Flows, Price Correlation, and Bitcoin’s Supply Cap
Bonnie: Spot Bitcoin ETFs now have two years of data. Have you observed correlation between ETF inflows/outflows and subsequent price action? Does ETF flow precede price movement—or vice versa?
Krista Lynch: Excellent question—one we studied for our staking model, needing to explain to the SEC whether sudden price shifts—especially in volatile assets—could trigger redemption chaos.
We found correlation exists—but it doesn’t imply causation. ETFs are highly efficient tools for rapidly expressing risk views—so you might see swift inflows today and outflows tomorrow—reflecting tool efficiency.
Generally, rising prices drive creation demand; falling prices drive redemption demand. So directionally, they align—but I wouldn’t call either a leading indicator. If pressed, price likely moves first—ETFs react with lag—but observing one doesn’t guarantee the other.
Bonnie: If more Bitcoin is bought by treasury companies, could this distort creation/redemption? Would liquidity for this mechanism shrink?
Krista Lynch: We’re often asked this—especially given Bitcoin’s 21M cap. Some fear “running out of Bitcoin.” But basic supply/demand suggests this would only push up price—not hinder creation/redemption.
It just means higher Bitcoin acquisition costs—reflected in higher Bitcoin prices and higher NAVs. I don’t believe execution costs rise materially.
Tokenizing Real Assets: Pricing, Verification, and Timelines
Bonnie: Back to tokenization: last year, we discussed verifying that a token truly represents 1% of a real estate asset. Does a nation need to step forward and certify this?
Krista Lynch: I believe this ambiguity must be resolved before success. Regulatory rules, guidelines, or frameworks are needed to define valuation methodology. But this isn’t radically different from traditional finance. Where pricing ambiguity exists—e.g., indices—robust rules govern the pricing waterfall.
You can even challenge prices. E.g., “I usually price using Bloomberg Index—but today I dispute it, as it differs from the last trade by X%.” Such disputes enter resolution mechanisms—and traditional systems demonstrate functional design.
Friction exists—but healthy friction. Tokenization must evolve similar mechanisms. There must be a golden source of truth—or a consensus-building committee. This issue will persist—but resolving it is essential for tokenization’s success. Again: step by step—cash first, then equities, then RWAs.
Bonnie Blockchain: Any timelines?
Krista Lynch: RWAs will take many more years. Cash is already adopted via stablecoins—we’re likely seeing banks use them behind the scenes, regardless of public acknowledgment.
Equities: U.S. institutions like NYSE, Nasdaq, and DTC have announced initiatives. Progress is imminent—within months. But how far it goes may require years of development.
Could the Fed Buy Bitcoin ETFs?
Bonnie: The Fed has purchased ETFs historically—especially during crises like COVID, mainly in corporate bonds. Could a future Fed buy Bitcoin ETFs during market stress?
Krista Lynch: It’s possible. Never say never. But in my view, they need more time to familiarize themselves with this asset class.
Bonnie: How much time constitutes sufficient familiarity?
Krista Lynch: It’ll take time. But pension funds and endowments have already begun—that’s the first signal. Bitcoin is becoming increasingly institutionalized.
At Grayscale, we meet many newcomers to crypto—people new to the space. Yet here, we naturally assume everyone should own it—and already does. Reality is a long spectrum of investor readiness. Still, I believe Bitcoin will eventually belong in every portfolio.
Has Bitcoin Become Less Exciting Due to Institutionalization?
Bonnie: Has Bitcoin become increasingly institutionalized—and thus less exciting?
Krista Lynch: I hesitate to say “less exciting”—but yes, it’s increasingly institutionalized. Look around Consensus: more traditional banks, more people in suits.
That’s exciting too—it signals maturation. Ultimately, it brings more investors—and opens doors for those who previously watched from afar. ETFs play a huge role: many don’t know how to set up wallets; many institutions lack wallet risk infrastructure—or don’t want to build it.
So while it may be less thrilling in some respects, its rising adoption and institutionalization are profoundly exciting.
Bonnie: What do you think of Bitcoin OGs predicting $1M Bitcoin—or other wildly bullish targets?
Krista Lynch: I hope they’re right. I believe supply-demand dynamics exist that could make it real. Of course, $1M is extremely high—and will take time.
But consider Bitcoin’s 21M supply cap, DATs and ETFs buying Bitcoin, and ETFs enabling new investors—all positive catalysts for price appreciation.
Bonnie: To reignite excitement, perhaps institutionalize meme coins. There’s a huge Pepe booth—and frogs. Maybe a collaboration?
Krista Lynch: I saw it.
Divergent Futures for Bitcoin and Ethereum
Bonnie: What lies ahead for Bitcoin and Ethereum this year? Where do you see them by year-end?
Krista Lynch: To me, Bitcoin represents the “all-of-the-above” entry point—it embodies blockchain, Bitcoin, and other digital assets. We work with many new entrants to digital asset investing—often just beginning to learn about Bitcoin—so it’s the natural first attraction. They’ve heard of Bitcoin—but haven’t yet explored the token spectrum.
So Bitcoin remains highly accessible as a first touchpoint. Ethereum excites me differently—I see immense value in smart-contract-driven innovation.
If we can improve processes via blockchain—codifying back-office functions like fixed-income bond workflows for greater efficiency—that’s thrilling. So both Bitcoin and Ethereum have bright futures—just for distinct reasons.
Explaining Staked ETH ETFs to Non-Experts
Bonnie: Let’s discuss Ethereum. Earlier, you mentioned staked ETFs. Could you explain how they work—as if to my mom? How do you stake ETH—and earn yield?
Krista Lynch: We partner with third-party validators. Simply put, a validator is a participant you contribute tokens to—enhancing the protocol’s security and reliability. Strictly speaking, “staking” isn’t the most precise term—but for simplicity, think of contributing assets to serve the ecosystem.
Staked assets are locked—and illiquid. That’s the core challenge of implementing staking in a highly liquid product. You contribute assets to secure the ecosystem—and earn rewards in the same asset. With Ethereum, you receive additional ETH in your wallet.
How do we handle these rewards? For one ETH product, we monetize them—selling rewards for cash and distributing to investors. For another, we re-stake received ETH—enabling compounding over time.
For liquidity, we use deep mathematical modeling to determine how much to keep unstaked—and dynamically calibrate based on market conditions. We also implement delayed settlement with liquidity providers: they provide cash on a T+1 basis, while we settle with them once tokens are available. They charge a small spread—but this boosts product efficiency and enables yield generation. The net economic effect benefits investors.
Bonnie: So if everyone wanted to redeem from this ETF, you’d still be safe?
Krista Lynch: Yes. We keep a portion unstaked—ensuring immediate liquidity. For additional top-ups, we partner with liquidity providers who supply cash within normal business processes. So investors feel no front-end disruption—back-end handling is ours.
Why Retail Should Care About ETF Products
Bonnie: My final question: institutional appeal is obvious. But how would you persuade retail to consider ETH—or other Bitcoin—products?
Krista Lynch: Later today, we’re hosting “Crypto Connect” nearby—targeting advisers and end clients. Our BTC and ETH products are central focuses. They’re low-cost gateways to Bitcoin and Ethereum.
Compare exchange-based spot token trading costs—they often exceed ETF bid-ask spreads and management fees. In some cases, exchange token trading incurs up to 1.5% fees—while ETF spreads may be just one cent. Plus, management fees are extremely low—an attractive feature.
Bonnie: It’s also a way to access staked ETH without self-staking.
Krista Lynch: Exactly. I wouldn’t personally stake my fractional Ethereum—but Grayscale can do it for investors—and pass on the yield.
Quantum Computing, AI, and Service Provider Risk
Bonnie: One more topic: How do you conduct due diligence on quantum computing’s impact on Bitcoin—or AI disrupting smart contracts?
Krista Lynch: This comes up constantly at conference cocktail hours. I hear competing views: some call it Bitcoin’s biggest threat; others say it’s already happening—AI models are already operational.
I believe it warrants serious attention. I haven’t formed a definitive view on whether it’ll disrupt Bitcoin—but I hope the industry stays ahead of risks. This demands vigilance and continuous monitoring.
Bonnie: How does your internal team handle this? What do internal discussions look like?
Krista Lynch: We’re definitely monitoring it—and deeply concerned about impacts on service providers. We examine not just direct effects on our team—but on custodians, APs, etc. For example, could they suffer hacks? So we look beyond ourselves—deep into all touchpoints.
Taiwan Exchanges, Overseas Markets, and Innovation Incentives
Bonnie: Earlier, you referenced a conversation about Taipei/Taiwan exchanges. What was that about?
Krista Lynch: That was fascinating to me. I attended a Bloomberg-sponsored roundtable introducing U.S. issuers to overseas market incentives. One incentive involved innovation clauses.
Krista Lynch: It appears demand exists for our covered call products. I’m unsure whether digital asset covered calls are the government’s explicit target—but signals encouraging innovation abound. This may be a direction worth pursuing further.
Bonnie: Great—Krista, time’s about up.
Krista Lynch: Thank you for your time—and for the insightful questions.
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