Grayscale Senior Vice President Interview: The So-Called "10 AM Dump" Is Not a Conspiracy, But the New Normal for ETFs

Compiled & Edited by: TechFlow

Guest: Krista Lynch (Senior Vice President of Capital Markets, Grayscale Investments)

Host: Bonnie

Original Title: Is Wall Street the Master of Manipulation? A Former BlackRock Executive Reveals the Truth!

Podcast Source: Bonnie's Blockchain

Release Date: May 25, 2026

Editor's Note

The "10 AM sell-off" in Bitcoin ETFs, on-chain wallet movements, and whale transfers into ETFs are not the "institutional conspiracies" retail investors imagine. They are a new market structure shaped by NAV pricing, AP creation/redemption, market maker hedging, and in-kind creation/redemption.

This episode features Krista Lynch, Senior Vice President of ETF Capital Markets at Grayscale Investments, who breaks down how the primary market, secondary market, liquidity providers, authorized participants, and custodians operate in sync.

In this conversation, Krista Lynch provides a remarkably concrete view of "institutionalization." Bitcoin ETF bid-ask spreads can be as narrow as 1 cent, premiums/discounts for some ETFs have converged to single-digit basis points, tokenized assets are moving from stablecoins and stocks to more complex RWAs, and more whales are switching on-chain tokens for ETF shares to gain advantages in tax planning, estate planning, margin, and collateral.

Key Quotes

ETF Mechanics & the "10 AM Sell-off"

• "When you see Bitcoin or other tokens moving in and out of our wallets on-chain, many people assume Grayscale is actively buying or selling. But in reality, we are just responding to end-investor demand to fulfill ETF creations, redemptions, and settlements."
• "ETFs have become a bellwether financial instrument for this asset class. They are no longer just speculative investments; they are also used for institutional investment and hedging."
• "Shorting a Bitcoin ETF doesn't necessarily mean you think Bitcoin is finished. It simply means you are expressing a certain investment view through a Bitcoin ETF."
• "Before GBTC converted to an ETF, without a primary market function, market makers couldn't keep the share price tightly aligned with the NAV. So discounts or premiums could reach 10% or even 20%, which is very unusual in the ETF world."

Authorized Participants, Market Makers & Retail Perceptions of "Unfairness"

• "The Authorized Participant (AP) is more of an administrative function. The real mind, the one that decides to create or redeem and drives the entire mechanism, is the ETF market maker."
• "End investors actually benefit from these efficiencies because when you or I buy a Bitcoin ETF, the bid-ask spread is often just 1 cent - close to the narrowest it can possibly be."
• "ETF flows and price movements usually correlate in direction, but I wouldn't say one is a leading indicator of the other. If anything, ETF flows seem to be a lagging response to price changes."

Tokenization & the TradFi/DeFi Convergence

• "The biggest theme in my recent conversations isn't price appreciation anymore; it's infrastructure building. This signals that the industry is maturing."
• "I view stablecoins as tokenized cash. This will likely be the first foothold for banks and other traditional financial institutions, before moving on to tokenizing assets like US equities."
• "In the most progressive world, we might eventually have a global currency. But I don't think that will happen quickly because central banks have legitimate reasons to control and protect their own monetary systems."

Ethereum Staking, Yield & Liquidity

• "The differentiator for our Ethereum products is that we implemented staking. These products can actually generate yield and provide the value derived from staking back to investors."
• "The hardest part of staking within an ETF isn't earning the yield; it's that once assets are staked, they become illiquid, while the fund must still be ready to honor redemptions."
• "We dynamically determine how much of the fund's assets should remain unstaked using a mathematical model. Simultaneously, we arrange delayed settlements with liquidity providers so investors experience no disruption on the front end."

Whales, the Next Wave of ETFs & Institutionalization

• "What surprised us is that whales are increasingly willing to bring their tokens into ETFs. Converting tokens into shares often unlocks benefits available in US brokerage accounts, like tax planning, estate planning, margin, and collateral use."
• "We are past the stage of 'if regulation allows it, we'll do it.' We now need to be more selective in deciding which assets are truly worth bringing to market as ETFs."
• "HYPE and BNB are two protocols I'm currently watching."
• "Bitcoin is becoming more institutionalized. Maybe it's less exciting in some ways, but it also means the asset class is maturing and attracting investors who were previously on the sidelines."

Opening: Starting with the "10 AM Sell-off"

Bonnie (Host): Welcome to the show. Today, we're joined by Krista Lynch, Senior Vice President of ETF Capital Markets at Grayscale Investments, to discuss institutional adoption and the future of tokenization. Krista, welcome to the show. Great to have you.

Krista Lynch: Thanks so much for having me.

Bonnie: I'm really looking forward to this conversation. Let's start with the so-called "10 AM sell-off." There's speculation in the market that around 10 AM daily, Bitcoin experiences a 2% to 3% drop, which retail investors buy into, and that it's somehow linked to Authorized Participants (APs) and ETF issuers. What are your thoughts?

Krista Lynch: I'm aware of these theories on Twitter or X. I can't say I know every single driver, but there are a few things happening around that time that are important, mainly related to NAV calculations and key pricing times for other financial instruments. For example, some futures for Bitcoin and other digital assets have their values determined at a fixed time, which I recall is London time, correlating to around 10 or 11 AM here, aligning with the timeframe you mentioned.

Another critical time is 4 PM Eastern, which is when these products calculate their NAV, so you see a noticeable increase in trading activity between 3 PM and 4 PM. We often have to debunk market theories, especially those involving Grayscale products. People see tokens moving in and out of wallets and assume we're buying or selling, but often we are just facilitating settlements. I suspect the "10 AM sell-off" is similar. These times are important for value determination and can stimulate a lot of trading, but there's not necessarily a deeper meaning.

Bonnie: There's also discussion about ETF flow data. Retail sees net inflows and outflows for spot Bitcoin ETFs and immediately concludes "institutions are buying" or "institutions are selling." But there's a lot of hedging involved. Can you explain that?

Krista Lynch: Exactly. When our Bitcoin or other digital asset ETFs settle, you can see Bitcoin or other tokens entering or leaving our wallets on-chain. Many people think Grayscale is actively making buy/sell decisions, but we are actually demand-driven by end investors. When investors buy shares, that demand flows down to the AP, who might initiate a creation or redemption.

When a creation or redemption occurs, my team buys or sells the corresponding amount of Bitcoin. We are not an actively managed fund expressing a directional view; we are driven by market demand.

The hedging you mentioned is crucial too. As ETFs become a financial instrument, or a bellwether for this asset class, they are no longer just speculative tools. They are used for institutional investment and hedging. You can go long or short. Going short doesn't necessarily mean you think Bitcoin is finished; it just means you're expressing a particular investment view via a Bitcoin ETF.

GBTC Premium/Discount, Primary & Secondary Markets

Bonnie: When I first started covering this space, before Bitcoin ETFs were approved, Grayscale's GBTC was the benchmark for institutional exposure through a securitized product. Its premium or discount to NAV was often watched as a sentiment indicator. Before discussing sentiment, can you explain why premiums or discounts occur?

Krista Lynch: Sure. An ETF actually trades in two markets simultaneously. Investors like you and me buy and sell ETF shares on the secondary market through brokerage accounts like Fidelity or Schwab. But ETFs also trade on a primary market at the institutional level. In the primary market, Authorized Participants work directly with the ETF market maker to create new shares or remove existing ones from the market.

A premium or discount arises when the secondary market price doesn't equal the NAV, which is the primary market price. Typically, APs, or more accurately, the ETF market makers they work with, keep the secondary market price very close to the NAV.

However, before GBTC became an ETF, it lacked the primary market function. So ETF market makers could only access one side of the market, making it impossible to keep the share price tightly aligned with the NAV. Why was the market so focused on this premium/discount? It became almost a sentiment indicator for the probability of us winning a lawsuit and converting GBTC to an ETF. The market knew that if GBTC could convert to an ETF, the mechanism would work as designed, and the share price should revert to NAV. Whenever important news broke, the premium/discount would suddenly narrow or widen as the market priced in what that meant for the odds of ETF approval.

Bonnie: But the Bitcoin market was already very liquid back then. Why didn't arbitrageurs completely eliminate the premium or discount?

Krista Lynch: They can do it now. If you look at current Bitcoin ETFs, the premium and discount are usually just a few basis points, very small. But before GBTC could uplist or convert to an ETF, the discount or premium could reach 10% or even 20%, which is almost unthinkable for an ETF. The reason was that arbitrageurs couldn't access the primary market; they could only trade on the secondary market. When there was an excess of shares in the market and no mechanism to reduce them, the price deviated.

Centralized Exchanges, Liquidity Providers & the ETF Creation Process

Bonnie: What role do centralized exchanges (CEXs) play in the whole mechanism?

Krista Lynch: They are very important trading outlets. As I mentioned, when we get a creation or redemption order, we need to buy or sell Bitcoin. At Grayscale, we might do bilateral trades with certain trading firms. But some issuers might rely on exchanges as another venue for liquidity.

Ultimately, we refer to these entities as liquidity providers. The dealers we trade with are also plugged into this ecosystem. So whether you're going directly to a liquidity provider or sourcing liquidity through an exchange, the system is symbiotic. Liquidity providers might get tokens from exchanges or provide their own liquidity there. It all feeds into the very tight pricing available for ETFs.

Bonnie: Can you walk us through the process step-by-step? When I buy a share of a spot Bitcoin ETF, what happens behind the scenes?

Krista Lynch: This is my favorite question, and what I spend most of my time on. You and other investors buy the Bitcoin ETF. As demand accumulates, the ETF market maker providing these shares on the backend might become short, meaning they sold you shares but didn't necessarily have them. To cover this, they need to create new shares.

So they work with an AP. The AP is an entity with specific licenses that can interact directly with issuers like Grayscale. The ETF market maker packages its short share position and comes to Grayscale through the AP, saying, "I need to create shares to cover my short position."

My team asks how many shares they need, converts that into the equivalent amount of Bitcoin, goes into the market to buy that Bitcoin, and backs those shares with the equivalent amount of Bitcoin. After settlement, the ETF market maker receives the shares through the AP, while you already had your shares. All this happens behind the scenes. The end of the lifecycle is the AP delivering the shares to the ETF market maker, who covers their short. This creation and redemption cycle happens continuously every day.

Bonnie: Does this process take a full day?

Krista Lynch: Settlement usually takes about a day, but the actual trade execution is very fast, maybe 5 to 10 minutes. This is intentional. We don't want the market to move significantly while the AP is seeking a quote. In a very liquid market, a single news item can cause volatility, so we execute the trade very quickly.

Bonnie: Following up on this. Some discussions suggest that some APs are also liquidity providers.

Krista Lynch: That's true.

More specifically, an AP is technically a US broker-dealer. Many people mistakenly think the AP is the mastermind behind creations and redemptions, but it's more of an administrative function. The real brain is the ETF market maker.

Many large firms that house ETF market makers also have crypto trading enterprises. So, we often see an ETF market maker send an order through an AP, and when I go out to buy Bitcoin, their crypto trading desk often wins the trade. This can be intentional by the ETF market maker because it allows them to compress risk. If they are hedging a trade and have an ETF share position, they also want to match their Bitcoin exposure. Winning the Bitcoin trade helps them consolidate that risk.

Bonnie: But can you understand why retail might find this a bit "unfair"? They feel like you guys are the smart money and they can't compete.

Krista Lynch: I understand the perception, but my counterpoint is that end investors actually benefit because they get very tight market spreads. When you or I buy a Bitcoin ETF, the bid-ask spread is typically just 1 cent. That's practically the narrowest it can be, representing single-digit basis point pricing.

This pricing is possible precisely because ETF market makers can achieve these efficiencies. You and I can't access the primary market, and I think many theories stem from this opacity. But we ultimately benefit because APs trade in huge sizes, and we get to enjoy the extremely tight spreads resulting from their activity, even though we're not trading at that scale. It's an ecosystem where everyone wants the best outcome. There are origins to those theories, but I hope I've clarified them.

Tokenization Growth Amidst Price Declines

Bonnie: Grayscale Research reported negative returns across six crypto sectors in Q1 and Q2, including on-chain finance and ETFs. Simultaneously, tokenization volume grew by 245%. What do you make of this divergent trend?

Krista Lynch: The biggest theme in my recent conversations is less about price appreciation and more about infrastructure build. This reflects the industry's maturation. We're not just talking about whether a token can 10x in the next few weeks or months. We're discussing what we are actually building on blockchains in terms of real