The recent decision by the US Securities and Exchange Commission (SEC) to suspend the conversion of Grayscale Investments’ Digital Large Cap Fund (GDLC) into an exchange-traded fund (ETF) has sparked significant discussion among investors and analysts alike. The fund, which includes a variety of cryptocurrencies like XRP, Solana, and Cardano in addition to Bitcoin and Ethereum, was poised for this transition before the unexpected halt. In a communication dated July 1, Deputy Secretary J. Matthew DeLesDernier notified the New York Stock Exchange (NYSE) of the stay, stating that the commission would review the previously granted rule change.
This abrupt pause halts an approval previously given by the SEC’s Division of Trading & Markets under Rule 19b-4, related to the proposal for GDLC to be listed as a “Trust Unit.” Even though the registration statement for the fund is effective under the Securities Act, the absence of the SEC’s final approval means that the listing on NYSE Arca cannot take place until further notice.
What Is Causing The SEC’s Delay On The GDLC ETF?
Currently, GDLC oversees approximately $755 million, with around 80% in Bitcoin and 11% in Ethereum. The fund’s allocation of about 8% across XRP, Solana, and Cardano is significant because these assets have yet to be recognized as commodities by the SEC. This makes GDLC the first multi-asset spot ETF to feature such a range of tokens. In contrast, Grayscale’s Bitcoin trust, known as GBTC, transitioned without issues earlier this year after a court ruling favored its conversion.
Bloomberg Intelligence’s ETF expert James Seyffart provided insights on social media, revealing the unfolding situation: “UPDATE: While @Grayscale was given an approval order for their conversion of $GDLC into an ETF yesterday, there was a letter attached to that approval that is putting a Stay on their ability to actually convert at this time.”
Two potential reasons for this SEC decision have been proposed by Seyffart. First, it is possible that the SEC is postponing all multi-coin ETF launches while it develops a comprehensive framework for digital asset products. “The SEC is likely cautious about greenlighting anything under the 19b-4 process until they have an official stance on digital assets within the ETF realm,” Seyffart speculated.
Another theory suggests that there may be unresolved concerns regarding GDLC’s structure or necessary disclosures, stemming from a different internal division of the SEC. Seyffart elaborated, “There might be something specific about GDLC that needs addressing before the conversion can proceed.”
His colleague Eric Balchunas reinforced these insights, suggesting, “The plot thickens. The upper levels of the SEC are indicating that GDLC cannot proceed until further notified. They may wish to establish crypto ETP listing guidelines before allowing any new spot ETFs to enter the market.” These guidelines are anticipated to clarify the regulatory environment for crypto investments.
According to Rule 431, any SEC Commissioner has the authority to call for a review of an action approved by staff, leading to uncertainty regarding the timeline for resolution. Historically, these reviews can vary significantly in length, often extending from a few weeks to several months without a defined deadline. As a result, Seyffart summarized the situation, stating: “In short, it can’t convert yet, but ultimately, it likely will. We’re just left in the dark regarding when and precisely why the SEC has this ‘Stay’ order.”
This situation also opens the door for Grayscale to formally advocate for the staff’s decision to be upheld, while external parties may contribute comments or concerns. The SEC’s final ruling could either maintain, revise, or reverse the current stay, leaving GDLC’s future listing contingent on the outcome.
As of the latest market updates, XRP is valued at $2.27.
