02.07.2025 05:08
The U.S. Securities and Exchange Commission (SEC) has granted Grayscale Investments permission to transform its Digital Large Cap Fund into a spot exchange-traded fund (ETF). This landmark decision, detailed in a July 1st SEC filing, paves the way for the fund's listing and trading on the NYSE Arca exchange, a significant shift from its previous status as a private investment trust.
This newly-minted ETF will track the CoinDesk 5 Index, providing exposure to a basket of leading cryptocurrencies. At the time of approval, the fund's composition consisted primarily of Bitcoin (80.2%), followed by Ethereum (11.4%), XRP (4.8%), Solana (2.8%), and Cardano (0.8%). Daily valuations are determined using CoinDesk reference rates, with quarterly rebalancing to maintain the intended asset allocation.
Launched in 2018 and trading over-the-counter since 2019 under the ticker GDLC, the fund's transition to an ETF structure introduces daily creation and redemption of shares, facilitated by authorized participants through cash settlements in baskets of 10,000 shares. The fund's net asset value is calculated daily at 4:00 p.m. ET. The SEC's approval, achieved through an expedited rulemaking process, also included amendments to NYSE Arca rules, permitting ETFs to be structured as limited liability companies and built upon index-tracked portfolios.
Maintaining regulatory compliance is crucial. To this end, at least 85% of the fund's assets must consist of digital assets already underpinning existing SEC-approved exchange-traded products. Should this threshold be violated, the fund manager is obligated to either rebalance the portfolio or temporarily suspend trading to restore adherence to regulatory requirements.
This approval is a significant victory for Grayscale, which has actively pursued the conversion of several of its crypto trusts into ETFs. This latest success follows their legal triumph in 2023, where a federal judge overturned the SEC's previous rejection of their Bitcoin ETF application, deeming the rejection arbitrary and capricious. Their Bitcoin trust, now operating as an ETF, carries a 1.5% expense ratio, the highest within its competitive landscape. The SEC's approval of Grayscale's Digital Large Cap Fund conversion signals a potential turning point in the regulatory landscape for cryptocurrency-based ETFs.
