MSTR Cat

Trust Law/Level IX · Trusts on chain/9.2 Tokens and real-world assets/Lesson 3

Spot bitcoin ETFs as grantor trusts

How US spot bitcoin exchange-traded products are built as trusts: the January 2024 SEC approval, the roles of sponsor, trustee and custodian, grantor trust taxation, and what fees and tracking mean.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Hold spot bitcoin fund shares in an IRA or Roth IRA to avoid current tax on the small bitcoin sales each grantor trust makes to pay its fee. Catch: you hold a brokerage position, not coins, and SIPC never covers price falls.
  2. In a taxable account, hold shares over one year so gains qualify for long-term rates: 0% up to $49,450 of 2026 taxable income for single filers, $98,900 joint. Catch: fee sales still create small gains or losses to report each year.
  3. For a trust or estate, fund shares need no key-custody plan and can pass by transfer-on-death registration or trust titling. Catch: these products are not registered investment companies under the 1940 Act, so that Act’s protections are absent.
  4. Compare sponsor fees in each current prospectus, since they are paid from the trust’s bitcoin every year and shrink the bitcoin per share. Catch: market prices can drift from net asset value, because only authorised participants create and redeem baskets.

MaterialsThe SEC order of 10 January 2024 (Release No. 34-99306) approving the listing of spot bitcoin trust shares, free on the SEC websiteThe prospectus or annual report (Form 10-K) of one spot bitcoin exchange-traded product, free on the SEC’s EDGAR websiteLesson 9.2.2, on Delaware statutory trusts, and lesson 5.1.5, on grantor trusts, for background

Wonder

  1. Why is a product that trades on a stock exchange called a ‘trust’?
  2. Who does what inside the trust: the sponsor, the trustee or the custodian?
  3. Why are shareholders taxed as if they held bitcoin themselves?

Explore

  1. On 10 January 2024, the US Securities and Exchange Commission approved rule changes by three exchanges, NYSE Arca, Nasdaq and Cboe BZX, to list and trade shares of eleven spot bitcoin products, mostly as ‘Commodity-Based Trust Shares’ (Release No. 34-99306). These products are usually called ETFs, but they are not investment companies registered under the Investment Company Act of 1940; one annual report notes that their holders therefore lack that Act’s protections. Their shares are registered for sale under the securities laws, and each trust’s prospectus sets out its terms. This lesson explains the structure and does not recommend any product.
  2. Many of these products are Delaware statutory trusts (lesson 9.2.2). The trust holds bitcoin, and its shares represent fractional undivided beneficial interests in its net assets. Roles are set by the trust agreement and differ from product to product. In one example, the sponsor organises the trust and is paid the sponsor’s fee; a trustee is responsible for day-to-day administration; a separate Delaware trustee meets the Delaware-trustee requirement of 12 Del. C. §3807; a custodian holds the bitcoin, which means controlling the private keys (lesson 9.1.2); and an administrator keeps the accounts. Each product’s documents should be read for its own arrangement.
  3. Shares are created and redeemed in large blocks, called baskets, only by authorised participants, which are large broker-dealers. At first, creations and redemptions were made in cash; in July 2025 the SEC issued orders allowing in-kind creations and redemptions, in bitcoin, as the annual report of the trust cited in lesson 9.2.2 records for that trust. Everyone else buys and sells shares on the exchange at market prices, which can be higher or lower than the net asset value per share. Creation and redemption by authorised participants is the mechanism that usually keeps the two close, though it does not guarantee it.
  4. For US federal income tax, the sponsor treats the trust as a grantor trust, typically supported by a lawyer’s opinion that it ‘should’ be one, which one annual report describes as not free from doubt. Shareholders are then treated as if they directly owned a pro rata share of the trust’s bitcoin and directly incurred their share of its expenses. Because the trust usually sells or delivers bitcoin to pay its fees, each such sale is generally a taxable event to shareholders, typically small. The grantor trust rules are IRC §§671–679 (lesson 5.1.5).
  5. Net asset value is calculated from a benchmark price for bitcoin named in each prospectus. Fees are paid out of the trust’s bitcoin, so the amount of bitcoin behind each share slowly falls over time, and the share price can also move away from net asset value. Fees differ between products and change over time; they must be read in each current prospectus, and this lesson gives no figure. A shareholder holds a brokerage position, not bitcoin: it cannot move the coins, and it depends on the custodian’s security and on the trust’s service providers.
  6. For a trustee of a private trust, holding shares of such a product and holding bitcoin directly raise different questions: one involves a securities account, the other private keys and custody (lesson 9.1.2). Which, if either, is prudent depends on the trust’s terms and on the trustee’s duties under state law (lesson 8.3.2). The grantor trust treatment described here is US federal tax law; other countries may tax similar funds differently. This lesson gives no view on bitcoin or any product.

Key facts

  • On 10 January 2024, the SEC approved the listing of eleven spot bitcoin trust products on NYSE Arca, Nasdaq and Cboe BZX (Release No. 34-99306).
  • US spot bitcoin ETFs are not investment companies registered under the Investment Company Act of 1940, so that Act’s protections do not apply.
  • Roles are set by each trust agreement: typically a sponsor, a trustee, a Delaware trustee where required, a custodian holding the bitcoin and an administrator.
  • Authorised participants create and redeem shares in baskets; other investors trade shares on the exchange, at prices that can differ from net asset value.
  • As grantor trusts, these products treat shareholders as owning a pro rata share of the bitcoin; sales of bitcoin to pay fees are generally taxable to shareholders.
  • Fees are paid from the trust’s bitcoin, so the bitcoin per share falls over time; fee levels must be read in each current prospectus.

Exercise nine, six, three, one

9CollectList up to 9 features of a spot bitcoin trust product from this lesson or a prospectus you are reading (some sources give fewer), such as who holds the bitcoin, who manages the trust, how shares are created and how shareholders are taxed.
6ClusterSort them into 6 categories: regulatory approval, legal form, roles of the parties, creation and redemption, tax treatment, and fees and tracking.
3DistillReduce the 6 categories to 3 groups: what the trust holds, who acts for it, and what a shareholder actually owns and pays.
1CrystallizeWrite 1 sentence explaining, in your own words, why a spot bitcoin trust’s sale of bitcoin to pay its fees can be a taxable event for its shareholders.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS