03.07.2025 09:03

The U.S. Securities and Exchange Commission (SEC) has unexpectedly halted the approval process for Grayscale's Digital Large Cap Fund's conversion into a spot exchange-traded fund (ETF). This decision, announced in a July 2nd letter, suspends the Division of Trading and Markets' earlier accelerated approval, granted just a day prior under delegated authority. The SEC will now conduct a comprehensive review before deciding whether to ratify or overturn the initial decision.

Launched in 2018 and trading over-the-counter since 2019, Grayscale's fund, tracking the CoinDesk 5 Index, had finally received the go-ahead to become a fully-fledged ETF. Its asset allocation at the time of approval consisted primarily of Bitcoin (80%), followed by Ethereum (11.4%), XRP (4.8%), Solana (2.8%), and Cardano (0.8%). This conversion was part of Grayscale's larger strategy to bring its crypto trusts under stricter regulatory oversight.

This regulatory intervention stems, in part, from Grayscale's legal victory against the SEC in 2023. The asset manager successfully challenged the SEC's previous rejection of its spot Bitcoin ETF application, forcing a reassessment of their regulatory stance. The now-suspended approval would have enabled the fund to trade on NYSE Arca with daily creation and redemption of shares settled in cash, significantly enhancing liquidity and investor access.

The SEC's indefinite delay leaves the ETF conversion in a state of uncertainty. The lack of a timeline for a final ruling casts a long shadow over Grayscale's plans and adds considerable uncertainty for other firms hoping to launch diversified crypto ETFs. Bitwise, Hashdex, and Franklin Templeton, among others, currently await decisions on their own similar ETF applications, all facing the repercussions of this unexpected SEC intervention. Until the regulatory commission issues a final decision, Grayscale's Digital Large Cap Fund remains in its current over-the-counter trading structure.