The Crypto Desk

SEC Initiates Examination of NYSE Arca’s Proposal to Uplist Grayscale Digital Fund to an ETP

The U.S. Securities and Exchange Commission (SEC) has officially embarked on its review of Grayscale’s application to convert its Digital Large Cap Fund (GDLC) into an exchange-traded fund (ETF). This significant development began on November 4, 2024, and signals the commencement of a structured review process that spans 240 days for the filing submitted by NYSE Arca.

Review Process and Fund Details

Grayscale made its formal request to transition its fund into an ETF on October 16, which was shortly followed by the NYSE’s filing. The GDLC, which trades publicly under the ticker $GDLC, holds a diversified portfolio comprising Bitcoin, Ether, Solana, XRP, and Avalanche. As of November 1, 2024, the fund reported over $530 million in assets, allocating 76.53% to Bitcoin, 16.92% to Ether, 4.36% to Solana, 1.63% to XRP, and 0.56% to Avalanche.

Groundbreaking Regulatory Changes

The proposed rule change under NYSE Arca Rule 8.800-E is a landmark initiative, being the first of its kind to permit a national securities exchange to list and trade shares of multi-crypto asset exchange-traded products (ETPs). This innovation expands the asset base beyond the traditional Bitcoin and Ether, allowing for greater diversification within the crypto investment landscape. To qualify as diversified basket indices, funds must allocate at least 90% of holdings to assets with established markets like Bitcoin and Ether, with a provision to include up to 10% in other digital assets.

Grayscale’s Commitment to Crypto Innovation

David LaValle, Grayscale’s Global Head of ETFs, emphasized the intention behind this rule change, stating, “With this rule change, we aim to bring multi-crypto ETPs into the U.S. regulatory framework and continue delivering client-focused, future-forward solutions.” Initially launched as a private placement in 2018, GDLC began public trading in 2019 and became an SEC reporting entity in 2022, demonstrating Grayscale’s commitment to transparency and innovation within the crypto space.

Staying Ahead in the Crypto ETF Race

Grayscale’s Crypto Index Fund distinguishes itself by providing diverse asset holdings through the CoinDesk Large Cap Select Index, comprising five digital assets. Unlike other crypto index funds, which tend to focus narrowly on Bitcoin and Ether, Grayscale’s approach offers a broader selection of cryptocurrencies. Competing firms such as Hashdex and Franklin Templeton are still primarily focused on Bitcoin and Ether offerings.

Market Implications and Future Outlook

Industry analysts predict an emerging trend in crypto index ETFs that provide diversified exposure akin to the S&P 500 for conventional equities. This forecast follows the earlier approval of Bitcoin and Ether ETFs earlier in the year. Notably, Eric Balchunas, a Bloomberg ETF analyst, pointed out that the upcoming U.S. presidential election could impact crypto regulatory developments. A potential Trump victory might usher in a crypto-friendly SEC, thereby expediting ETF approvals, whereas a Harris administration might slow progress in this area.

Surge in Crypto Product Applications

The growing interest in crypto investment vehicles is evident as several proposals are currently in the pipeline. For instance, Canary Capital and Bitwise have recently filed applications for XRP ETFs, while Canary has also submitted a proposal for a spot Litecoin ETF on October 15. This uptick in filings underscores the increasing demand for crypto investment options, paving the way for broader access for both retail and institutional investors.

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