Key Points
- Grayscale has applied to the U.S. SEC to convert its multi-crypto fund into an ETF.
- The application includes XRP, SOL, and AVAX, which may present regulatory challenges.
Grayscale, a prominent crypto asset manager, has submitted an application to the U.S. Securities and Exchange Commission (SEC) to transform its multi-crypto fund into an ETF. The firm’s Digital Large Cap (GDLC) fund currently manages $524 million in assets, including Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Ripple (XRP), and Avalanche (AVAX).
ETF Conversion and Challenges
The majority of the GDLC fund consists of BTC and ETH. If the application is approved, the fund will be traded on the New York Securities Exchange (NYSE). Converting a fund into a spot ETF simplifies the process of buying and selling shares. Grayscale has already converted two funds linked to BTC and ETH into spot ETFs this year.
However, the inclusion of XRP, SOL, and AVAX in the application might pose regulatory challenges. Currently, only BTC and ETH are recognized as commodities by the SEC. Other issuers, like Hashdex and Franklin Templeton, have only included BTC and ETH in their ETF applications. XRP’s ongoing case with the SEC has left its regulatory status unclear.
Speculations and Projections
Nate Geraci of ETF Store suggests that Grayscale’s move might be a gamble on a change in administration following the U.S. elections in November. Presto Research, a crypto-focused research firm, views the application as a potential route to the approval of altcoin ETFs. However, they also anticipate a ‘bumpy’ road for the application, citing the challenges faced by spot SOL ETFs in August.
Grayscale’s converted ETFs have experienced significant outflows, as seen with GBTC and ETHE. Since its conversion, GBTC has lost over $20 billion in total flows, while ETHE has seen nearly $3 billion in outflows. The outcome of the application, particularly regarding altcoins with unclear regulatory status, remains uncertain following the U.S. elections.
