Grayscale’s large-cap ETF conversion in limbo as SEC halts approval

The U.S. Securities and Exchange Commission (SEC) has put a hold on the approval allowing Grayscale’s Digital Large Cap Fund to list as a spot exchange-traded fund (ETF) on NYSE Arca, pending further review.

In a letter dated July 2, the SEC said it will review the Division of Trading and Markets’ July 1 decision granting accelerated ETF conversion approval to Grayscale. The earlier approval, which came via delegated authority, is now stayed until the commission decides whether to uphold or reverse it.

First launched in 2018 and trading over-the-counter under the ticker GDLC since 2019, Grayscale’s fund had just received the green light to operate as a fully regulated ETF. The fund tracks the CoinDesk 5 Index, and at the time of approval, was composed of 80% Bitcoin (BTC), 11.4% Ethereum (ETH), 4.8%XRP (XRP), 2.8% Solana (SOL), and 0.8% Cardano (ADA). 

The move to convert it into an ETF followed a broader push by Grayscale to bring its crypto trusts under regulated structures. Back in 2023, the asset manager filed and won a lawsuit against the regulator, forcing the review of its earlier denial of Grayscale’s spot Bitcoin ETF application.

The paused approval would have allowed the fund to trade on NYSE Arca with daily creation and redemption of shares, settled in cash, offering more flexibility and liquidity than its previous structure.

However, with the stay in place, the ETF conversion is now in limbo. The SEC has not said when it will complete its review or issue a final ruling.

The delay adds uncertainty for Grayscale and other issuers looking to bring diversified crypto ETFs to market, such as Bitwise, Hashdex, and Franklin Templeton, who also have similar filings still pending.

Until the regulatory commission makes a final decision, Grayscale’s Digital Large Cap Fund will remain in its current form and cannot begin trading as an ETF.