SEC pauses Grayscale’s Digital Large Cap Fund ETF conversion, holding $755M in BTC, ETH, XRP, SOL, and ADA, pending further review.
In a significant development, a new twist has emerged in Grayscale’s effort to convert its Digital Large Cap Fund into an ETF. This occurs only one day after the SEC issued an approval order for the asset manager to convert this fund, which comprises Bitcoin, Ethereum, Solana, XRP, and Cardano.
SEC Issues Stay Order for Grayscale Digital Large Cap Fund Conversion
The SEC has informed the NYSE Group of the stay order concerning the asset manager’s proposed conversion of its Digital Large Cap Fund to an ETF. The letter was addressed to the exchange. The Commission declared it would issue this halt order to evaluate the delegated action.
This follows the SEC’s approval order for Grayscale to convert the fund and for the NYSE to list and trade shares of the ETF. The fund comprises five crypto assets and would have been the first spot ETF, offering exposure to XRP and ADA. The agency declared that the halt order would remain in effect until an alternative order was issued.
This implies that Grayscale will be unable to transform its Digital Large Cap Fund into an ETF, despite the SEC’s approval. Subsequently, the fund will not be operationalized on the NYSE until the Commission indicates otherwise.
Potential Justifications for the SEC’s Stay Order
Bloomberg analyst James Seyffart provided possible explanations for the halt order in an X post. Initially, he stated that the Commission may not wish to authorize the launch of any activity under the 19b-4 process until they have explicitly approved or established a framework for digital assets in the ETF wrapper.
The SEC reportedly collaborates with exchanges to establish a streamlined listing standard for crypto ETFs as part of this framework. This will allow crypto ETFs to be listed in less than 75 days instead of the 240-day window the Commission typically uses to approve the 19b-4s.
Seyaffrt also observed that the SEC may have merely approved Grayscale’s Digital Large Cap Fund conversion due to the final deadline, which was approaching today. He expressed his belief that the agency was not inclined to reject the application but that they were not yet prepared for a launch.
According to the Bloomberg analyst, the second theory suggests that the Commission may wish to address a particular aspect of the fund, such as its structure. He observed that the Division of Trading and Markets issued the 19b-4 approval order and that it is feasible that another division is not yet prepared to accommodate Grayscale’s conversion of the Fund.
