Grayscale Senior VP Interview: The So-Called "10 AM Dump" Is Not a Conspiracy, but the New Normal of ETFs

Compiled by: Shenchao TechFlow

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

Host: Bonnie

Original Title: Wall Street's Master of Manipulation? Former BlackRock Executive Explains the Truth!

Podcast Source: Bonnie Blockchain

Air 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 the new market structure shaped by NAV pricing, AP creations/redemptions, market maker hedging, and in-kind creations/redemptions.

In this episode, we invited Krista Lynch, Senior Vice President of ETF Capital Markets at Grayscale Investments, to break down how the primary market, secondary market, liquidity providers, authorized participants, and custodians work together in synergy.

In this conversation, Krista Lynch provides a remarkably concrete explanation 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 and more whales are swapping on-chain tokens for ETF shares to gain advantages in tax planning, estate planning, margin, and collateral.

Key Takeaways

ETF Mechanics and the "10 AM Sell-off"

• "When you see Bitcoin or other tokens moving in and out of our wallets on-chain, many people think Grayscale is actively buying or selling; but in reality, we are just responding to end-investor demand to facilitate ETF creations, redemptions, and settlements."
• "ETFs have become a bellwether financial instrument for this asset class. They are no longer just speculative investment vehicles but are also used for institutional investment and hedging."
• "Shorting a Bitcoin ETF doesn't necessarily mean you think Bitcoin is finished; it just means you are expressing a specific investment view through the Bitcoin ETF."
• "Before GBTC converted to an ETF, because it lacked a primary market function, market makers couldn't keep the share price closely tied to the NAV, so the discount or premium could reach 10% or even 20% – which is very rare in the ETF world."

Authorized Participants, Market Makers, and the Perceived 'Unfairness'

• "The Authorized Participant (AP) is more of an administrative function. The real driving force behind creations and redemptions, the engine that makes the whole mechanism work, is the ETF market maker."
• "End investors actually benefit from these efficiencies. When you or I buy a Bitcoin ETF, the bid-ask spread is usually only 1 cent, which is about as narrow as it can get."
• "ETF inflows and outflows generally align with price trends, but I wouldn't say one is a leading indicator for the other. If anything, ETF flows seem to be a lagging reaction to price changes."

Tokenization and 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 be the first foothold for banks and other traditional financial institutions, before moving on to tokenizing basic assets like US equities."
• "In the most progressive world, we might have a global currency, but I don't see that happening soon because central banks have valid reasons to control and protect their own monetary systems."

Ethereum Staking, Yields, and Liquidity

• "The differentiator for our Ethereum products is that we implement staking. These products can genuinely generate yield and pass the value from staking on to investors."
• "The hardest part about staking within an ETF isn't earning the yield; it's the fact that staked assets become illiquid, while the fund must be ready to honor redemptions at any time."
• "We use mathematical models to dynamically determine how much un-staked assets the fund should hold, while also arranging deferred settlement with liquidity providers so that investors don't experience any disruption on the front end."

Whales, the Next Wave of ETFs, and Institutionalization

• "What surprised us is that whales are increasingly willing to put their tokens into ETFs because converting tokens into shares often grants access to functions available in US brokerage accounts, like tax planning, estate planning, margin, and collateral."
• "We're no longer in the phase of 'if regulation allows it, we'll do it.' We have to be more selective in deciding which assets are worth bringing to market as an ETF."
• "HYPE and BNB are two protocols I'm keeping an eye on."
• "Bitcoin is becoming more institutionalized. Maybe in some ways it's less exciting, 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 have 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 program. Great to have you.

Krista Lynch: Thank you 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 a theory in the market that around 10 AM each day, Bitcoin sees a 2-3% sell-off, followed by retail buying, and that this is 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 claim to know exactly what drives all of them, but a few things are important around those times, mainly related to NAV calculations and the key pricing times of other financial instruments. For example, some Bitcoin and other digital asset futures are valued at a fixed time, I believe in London time, which corresponds to around 10 AM or 11 AM here – that aligns with the timeframe you mentioned.

Another important time is 4 PM US time, which is when these products calculate their NAV. So you see a notable increase in trading activity between 3 PM and 4 PM. We often need to clarify market theories, especially those involving Grayscale's products. People see tokens moving in and out of wallets and assume we're buying or selling, but many times we're just facilitating settlement. I suspect the "10 AM sell-off" is similar. These times are important for value determination and can trigger trading volume, but they don't necessarily have a deeper meaning.

Bonnie: There's also discussion about ETF flow data. Retail investors see inflows and outflows in Bitcoin spot ETFs and say "institutions are buying" or "institutions are selling." But in reality, there are many hedging strategies at play. Can you explain that?

Krista Lynch: Exactly. When settlements happen in our Bitcoin or other digital asset ETFs, you can see Bitcoin or other tokens moving into or out of our wallets on-chain. Many people think Grayscale is making active buy/sell decisions, but we are actually driven by end-investor demand. When investors buy shares, that demand flows down to the AP, who might then initiate a creation or redemption.

When a creation or redemption occurs, my team buys or sells the corresponding amount of Bitcoin based on the number of shares being created or redeemed. We are not an actively managed fund; we don't express directional views. It's driven by market demand.

The hedging you mentioned is also important. 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, and you can go short. Shorting doesn't necessarily mean you think Bitcoin is finished; it just means you are expressing a particular investment view through a Bitcoin ETF.

GBTC Discount/Premium, Primary Market, and Secondary Market

Bonnie: When I first started covering this space, Bitcoin ETFs didn't exist yet, and Grayscale's GBTC was the benchmark for institutional access via a securitized product. People often used its discount or premium relative to NAV as a sentiment indicator. Before we discuss sentiment, can you first explain why the premium or discount existed?

Krista Lynch: Sure. An ETF 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 the ETF also trades on an institutional level in the primary market. In the primary market, Authorized Participants work directly with ETF market makers to create new shares or remove existing shares from the market.

A premium or discount occurs when the secondary market price deviates from the NAV, which is essentially the primary market price. Normally, APs, or more accurately, the ETF market makers working with APs, keep the secondary market price very close to the NAV.

But before GBTC became an ETF, it didn't have a primary market function. So ETF market makers could only access one side of the market and couldn't keep the share price tightly aligned with the NAV. Why was the market so fixated on this discount/premium at the time? Because it almost became a sentiment indicator for the market's perception of our probability of winning the lawsuit and converting GBTC to an ETF. The market knew that once GBTC could convert to an ETF, the mechanism would work as designed, and the share price should revert to NAV. Whenever important news came out about the case, the discount/premium would suddenly narrow or widen. The market used it to digest what that news meant for the probability of ETF approval.

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

Krista Lynch: Now they can. If you look at Bitcoin ETFs today, 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 be 10% or 20%, which is almost unimaginable in the ETF world. The reason was that arbitrageurs couldn't access the primary market; they could only trade on the secondary market. When there is an excess supply of shares in the market with no mechanism to reduce them, prices diverge.

Centralized Exchanges, Liquidity Providers, and the ETF Creation Process

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

Krista Lynch: They are very important trading venues. As I mentioned, when we receive a creation or redemption instruction, we need to buy or sell Bitcoin. For Grayscale, we do bilateral trades with some trading firms. But some other issuers rely on exchanges as another venue to access liquidity.

Ultimately, we call these entities liquidity providers. The dealers we trade with are also plugged into this ecosystem. So whether you are trading directly with a liquidity provider or accessing liquidity through an exchange, the system is symbiotic. Liquidity providers might source tokens from exchanges or provide their own liquidity on exchanges. All of this contributes to the very tight pricing available to the ETF.

Bonnie: Can you explain it step-by-step? When I buy a share of a Bitcoin spot ETF, what happens behind the scenes?

Krista Lynch: This is my favorite question, and it's what I spend most of my time on. You and other investors buy Bitcoin ETFs. As market demand accumulates, the ETF market maker providing you with those shares might end up with a short position. That is, it sold you the shares but doesn't necessarily hold them. To cover that short position, it needs to create new shares.

So it partners with an AP. APs are entities with specific licenses that can interact directly with issuers like Grayscale. The ETF market maker packages the short position it has accumulated and goes to Grayscale through the AP, saying, "I need to create shares to cover my short position."

My team asks how many shares it needs, translates that share count into a corresponding amount of Bitcoin, goes into the market to buy that Bitcoin, and backs those shares with that equivalent amount of Bitcoin. Once the settlement is complete, the ETF market maker receives the shares through the AP, but you already received your shares long ago. All this happens behind the scenes. The end of this lifecycle is the AP delivering the shares to the ETF market maker, who then covers its short position. These creations and redemptions happen continuously every day.

Bonnie: Does this process take a full day?

Krista Lynch: The settlement typically takes about a day, but the trade itself happens very fast, maybe 5 to 10 minutes. This is intentionally designed. We don't want the market to move significantly while the AP is seeking a quote. In a highly liquid market, a single piece of news can cause significant volatility, so we execute the trade process very quickly.

Bonnie: Let me follow up. 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, that same firm's crypto trading desk often wins the trade. This is by design from the ETF market maker's perspective because it helps them compress risk. If they are hedging a trade and hold ETF shares, they also want to match their Bitcoin exposure. Winning the Bitcoin trade allows them to consolidate their risk.

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

Krista Lynch: I can understand, but my counterargument is that the end investor actually benefits because they get very tight market spreads. When you and I buy a Bitcoin ETF, the bid-ask spread is typically only 1 cent, which is basically the narrowest it can be – a single-digit basis point pricing.

This pricing is possible precisely because ETF market makers can achieve these efficiencies. You and I cannot access the primary market, and I think many theories stem from that fact. But we ultimately benefit because APs have to trade in large sizes, and we, who probably aren't trading that size, get to enjoy the very tight spreads they facilitate. It's an ecosystem where everyone wants the best outcome. The theories have their origins, but I hope I've clarified things.

Tokenization Growing Amidst Price Declines

Bonnie: Grayscale Research reported that six crypto sectors, including on-chain finance and ETFs, had negative returns in Q1 and Q2. At the same time, tokenization volume grew by