Grayscale Senior Vice President Interview: The So-called "10 AM Sell-off" Is Not a Conspiracy, but the New Normal of ETFs

Compiled & Translated by: Shenchao TechFlow

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

Host: Bonnie

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

Podcast Source: Bonnie Blockchain

Release Date: May 25, 2026

Editor's Note

The "10 AM dump" of Bitcoin ETFs, on-chain wallet movements, and whales transferring into ETFs are not the "institutional conspiracies" retail investors imagine. They are a new market structure shaped by NAV pricing, AP creations/redemptions, market maker hedging, and in-kind creations/redemptions.

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

In this conversation, Krista Lynch provides a concrete explanation of "institutionalization." Bitcoin ETF bid-ask spreads can be as narrow as 1 cent, premiums or discounts on 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 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 Dump"

• "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, processing 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 just means you are expressing a particular investment view through the Bitcoin ETF."
• "Before GBTC converted to an ETF, because there was no primary market function, market makers couldn't keep the share price and NAV closely aligned, so discounts or premiums could reach 10% or even 20%, which is very rare in ETFs."

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

• "The Authorized Participant (AP) is more of an administrative function. The entity that truly decides to create or redeem, driving the entire mechanism, 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 typically just 1 cent, which is about as narrow as it can get."
• "ETF inflows and outflows generally correlate with price movements, but I wouldn't say one is a leading indicator of 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 is no longer price appreciation, but infrastructure building. This shows 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 the tokenization of underlying assets like US equities."
• "In the most progressive world, we might have a global currency, but I don't think that will happen soon because central banks have legitimate reasons to control and protect their own monetary systems."

Ethereum Staking, Yield, and Liquidity

• "The differentiator for our Ethereum products is that we have implemented staking. These products can genuinely generate yield and pass on the value from staking to investors."
• "The hardest part about staking in an ETF isn't generating the yield; it's that the assets become illiquid once staked, and the fund must still be able to meet redemptions at any time."
• "We use mathematical models to dynamically determine how much of the fund's assets should remain unstaked, while arranging delayed settlements with liquidity providers so 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. Converting tokens into shares often provides access to tax planning, estate planning, margin, and collateral functions available in US brokerage accounts."
• "We are now past 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 in ETF form."
• "HYPE and BNB are two protocols I am currently watching."
• "Bitcoin is becoming more institutionalized. Perhaps it's less exciting in some ways, but it also means the asset class is maturing and attracting more investors who were previously on the sidelines."

Opening: Starting with the "10 AM Dump"

Bonnie (Host): Welcome to the show. Today we are 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: 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 dump." There's speculation in the market that around 10 AM daily, Bitcoin sees a 2% to 3% sell-off, followed by retail buying, and it seems related to APs (Authorized Participants) and ETF issuers. What are your thoughts?

Krista Lynch: I'm aware of many theories on Twitter or X. I can't say I know exactly all the drivers, but several things are important timing-wise, mainly related to NAV (Net Asset Value) calculations and critical pricing times for other financial instruments. For example, some Bitcoin and other digital asset futures have their values determined at a fixed time, which I believe is London time, corresponding to around 10 or 11 AM here, which aligns with the timeline you mentioned.

Another key time is 4 PM US time, when these products calculate their NAV. You'll see a noticeable increase in trading activity between 3 and 4 PM. We often have to clarify theories in the market, especially regarding 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 settlements. I suspect the "10 AM dump" is a similar phenomenon. These times are important for value determination and stimulate a lot of trading, but it doesn't necessarily have a deeper meaning.

Bonnie: People also discuss ETF flow data. Retail sees inflows and outflows for Bitcoin spot ETFs and says "institutions are buying" or "institutions are selling." But in reality, there are many hedging strategies at play. Can you explain?

Krista Lynch: Absolutely. When settlements occur for our Bitcoin or other digital asset ETFs, you can see Bitcoin or other tokens entering or leaving our wallets on-chain. Many people think Grayscale is actively making buy or sell decisions, but we are actually driven by end-investor demand. After an investor buys shares, this demand transmits to the AP, who might initiate a creation or redemption.

When a creation or redemption occurs, my team buys or sells the amount of Bitcoin corresponding to the number of shares created or redeemed. We are not an actively managed fund expressing a directional view; we are 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 investment vehicles. They are also used for institutional investment and hedging. You can go long or short. Shorting doesn't necessarily mean you think Bitcoin is finished; it just means you are expressing a particular investment view through the Bitcoin ETF.

GBTC Discount/Premium, Primary Market, and Secondary Market

Bonnie: When I first started covering this space, before Bitcoin ETFs launched, Grayscale's GBTC was the benchmark for institutional adoption of securitized products. People often used its discount or premium relative to NAV as a sentiment indicator. Before discussing sentiment, can you explain why a premium or discount occurs?

Krista Lynch: Sure. ETFs trade 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 an institutional-level 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 arises when the secondary market price doesn't equal the NAV, which is essentially the primary market price. Normally, the AP, or more accurately, the ETF market maker working with an AP, keeps the secondary market price very close to the NAV.

However, before GBTC became an ETF, it lacked a primary market function. The ETF market maker could only access one side of the market and couldn't keep the share price and NAV tightly aligned. Why was the market so focused on this discount/premium? It almost became a sentiment indicator on the probability of us winning our lawsuit and converting GBTC to an ETF. The market knew that once GBTC could convert, the mechanism would work as designed, and the share price should converge to NAV. Whenever important news emerged, the discount/premium would narrow or widen sharply, as the market used it to digest the implication for the probability of ETF approval.

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

Krista Lynch: Now they can. If you look at Bitcoin ETFs today, premiums and discounts are typically just a few bps (basis points), very small. But before GBTC could list on an exchange or convert to an ETF, the discount or premium could reach 10% or 20%, which is almost unimaginable in an ETF. The reason was that arbitrageurs couldn't access the primary market; they could only trade in the secondary market. When there is an excess supply of shares in the market and no mechanism to reduce them, the price deviates.

Centralized Exchanges, Liquidity Providers, and the ETF Creation Process

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

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

Ultimately, we refer to these entities as liquidity providers. The dealers we trade with are also connected to this ecosystem. So, whether you trade directly with a liquidity provider or access liquidity through an exchange, the system is symbiotic. Liquidity providers might source tokens from exchanges or provide their own liquidity on exchanges, all of which contributes to the very tight pricing available to ETFs.

Bonnie: Can you explain the process step-by-step? What happens behind the scenes when I buy a share of a Bitcoin spot ETF?

Krista Lynch: This is my favorite question, and what I spend most of my time on. You and other investors buy Bitcoin ETFs. When demand accumulates, the ETF market maker providing you with those shares might end up with a short position. They sold you shares but don't necessarily have them in hand. To cover this short position, 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 an issuer like Grayscale. The ETF market maker packages its net short share position and comes to Grayscale via the AP, saying, "I need to create shares to cover the short position I've built."

My team asks how many shares they need, converts that number into the equivalent amount of Bitcoin, goes into the market to buy that Bitcoin, and backs those shares with the equivalent Bitcoin. After settlement is complete, the ETF market maker receives the shares via the AP. You, the end investor, already have your shares. All of this happens behind the scenes. The end of the cycle is the AP delivering shares to the ETF market maker, who then covers its short position. This cycle of creations and redemptions happens continuously every day.

Bonnie: Does this process take a day?

Krista Lynch: Settlement typically takes about a day, but the actual trade itself is very fast, maybe 5 to 10 minutes. This is by design. We don't want the market to move significantly while the AP is seeking a quote. In a very liquid market, a single piece of news can cause large swings, so we execute the trade very quickly.

Bonnie: I want to follow up. Some discussions suggest that some APs are also liquidity providers.

Krista Lynch: That's true.

To be more specific, an AP is technically a US broker-dealer. Many people mistakenly think the AP is the mastermind deciding to create or redeem, but it's more of an administrative function. The real brains is the ETF market maker.

Many of the large firms that house ETF market makers also have crypto trading enterprises. So, we often see an ETF market maker send an order via an AP, and when I go out to buy Bitcoin, their crypto asset trading desk often wins the trade. This is by design for the ETF market maker, as it allows them to compress risk. If they are hedging a trade and hold ETF shares, they also want to match the Bitcoin exposure. Winning the Bitcoin trade helps them consolidate the risk.

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

Krista Lynch: I can understand that, but my counter-argument is that end investors actually benefit from this because they get very tight market spreads. When you and I buy a Bitcoin ETF, the bid-ask spread is usually just 1 cent, which is basically as narrow as it gets, single-digit basis point pricing.

This pricing is possible precisely because of the efficiencies the ETF market maker achieves. You and I can't access the primary market, and I think this is where many theories originate. But we ultimately benefit because the AP deals in huge block sizes, and we, who likely won't trade at that scale, get to enjoy the extremely 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 Growth Amidst Price Declines

Bonnie: Grayscale Research reported negative returns in six crypto sectors, including on-chain finance and ETFs, during Q1 and Q2. Meanwhile, tokenization volume grew by 245%. How do you view this inverse trend?

Krista Lynch: The biggest theme in my recent conversations is more about infrastructure build than price appreciation. This reflects the industry's maturation. We are no longer just discussing whether a token can