Bloomberg ETF analyst: If SEC only allows Bitcoin spot ETF to be cash-based, it will be disadvantageous for GBTC and its holders.

On December 14th, BlockBeats reported that Eric Balchunas, an ETF analyst at Bloomberg, stated on social media that the SEC may approve a spot Bitcoin ETF around January 8th to 10th next year. However, we expect the SEC to limit these funds from using physical creation and redemption of shares, at least initially. This may not be important to most investors, but it could affect tax efficiency, which could cost GBTC holders. Eric Balchunas explained that one of the superpowers of the ETF structure is its tax efficiency, which is due to the physical creation and redemption mechanism, where the underlying assets of the ETF are directly exchanged for ETF shares, which is a non-taxable event, allowing the vast majority of ETFs to avoid distributing capital gains. If an ETF uses cash for creation and redemption, the fund must buy and sell assets (in this case Bitcoin), which is a taxable event. This may make the process of converting GBTC to ETF more complicated, as it holds many Bitcoins with a lower cost basis, and capital gains will be generated when funds flow out under the cash-only creation mode. Bloomberg estimates that the average entry price of every Bitcoin flowing into GBTC is around $11,625. Currently, GBTC holds approximately 620,000 Bitcoins, and it is estimated that approximately 640,000 Bitcoins have flowed into it throughout its history. Previously, BlockBeats reported that Valkyrie, Bitwise, and Invesco have all stated in their latest prospectus (S-1 document) that the creation and redemption can only be done in cash.