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 leading crypto asset manager, has recently filed an application with the U.S. Securities and Exchange Commission (SEC) to turn its multi-crypto fund into an ETF.
The firm’s Digital Large Cap (GDLC) fund currently boasts $524 million in assets under management and includes Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Ripple (XRP), and Avalanche (AVAX).
ETF Conversion and Regulatory Challenges
The dominance of BTC and ETH in the fund is over 90%. If the SEC approves the application, 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. Earlier this year, Grayscale converted two funds linked to BTC and ETH into spot ETFs.
However, only BTC and ETH are currently recognized as commodities by the SEC. Other issuers that have applied for similar crypto index ETFs, such as Hashdex and Franklin Templeton, have only included BTC and ETH in their applications.
Grayscale’s application is unique in that it includes XRP, which is currently embroiled in a regulatory dispute with the SEC.
Potential Pathway to Altcoin ETF Approval
Crypto-focused research firm, Presto Research, views the application as a potential route to altcoin ETF approval. However, they also note that the application’s journey could be ‘bumpy’, citing the challenges faced by spot SOL ETFs in August.
Grayscale’s converted ETFs have experienced significant outflows, as seen in 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 fate of the application following the U.S. elections, and the approval status of other altcoins with ambiguous regulatory statuses, remains to be seen.