SEC’s Review of Grayscale Investments’ ETF Conversion Proposal Nears Conclusion
In a significant development in the cryptocurrency world, the United States Securities and Exchange Commission (SEC) is approaching the final stages of its review concerning Grayscale Investments’ ambitious proposal. The firm aims to transform its $760 million Digital Large Cap Fund (GDLC), which incorporates major cryptocurrencies such as Bitcoin, Ethereum, XRP, Solana, and Cardano, into an exchange-traded fund. With the statutory deadline looming on July 2, the financial community is keenly observing the SEC’s decision.
Potential Approval of Multi-Asset Crypto ETFs
Nate Geraci, the president of ETF Store, expressed his optimistic outlook on social media, suggesting a strong probability that the SEC will approve the conversion. He further speculated that this approval could pave the way for individual spot ETFs for XRP, Solana, Cardano, and other cryptocurrencies.
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The optimism is partly rooted in the fund’s composition. As of June 27, Bitcoin comprised 80.8% of GDLC, with Ether constituting 11.1%. Meanwhile, XRP, Solana, and Cardano collectively accounted for just 8.1% of the fund, a proportion that historically has not raised regulatory concerns over liquidity or market manipulation. Geraci highlighted that this low-risk approach offers a measured entry into these assets.
Future Prospects for XRP, Solana, and Cardano ETFs
This gradual strategy aligns with the SEC’s historical methodology. Spot Bitcoin ETFs received approval in January 2024, following a court ruling that criticized the Commission for inconsistent decision-making. Subsequently, spot Ether ETFs gained approval seven months later.
Geraci points out that the SEC has already established guidelines for limited exposure to non-traditional assets. Since February, the Commission has allowed ETFs to allocate up to 15% of their portfolio to illiquid private-credit instruments, provided there is evidence of strong valuation and liquidity controls. He argues that a similar 10% threshold for crypto assets beyond Bitcoin and Ether should be reasonable.
Regulatory Engagement Intensifies
Grayscale’s recent amendment of its Form S-3 for GDLC, filed on June 26, indicates active engagement with the SEC. Geraci interprets this as a sign of serious regulatory consideration. The updated registration statement emphasizes the necessity of SEC approval for NYSE Arca’s proposal to list the shares and includes revised disclosures on custody, creation-unit size, and index methodology, reflecting ongoing dialogue with SEC representatives.
Industry Analysts Echo Optimism
Analysts from Bloomberg Intelligence, including James Seyffart, support Geraci’s assessment. They argue that, given the small proportion of non-Bitcoin and non-Ether holdings, the SEC is more likely to approve GDLC. Rejecting the proposal might compel the SEC to either rapidly develop a comprehensive crypto-ETF framework or justify why an 8% exposure poses excessive risk.
Following this line of reasoning, Seyffart and his colleague Eric Balchunas have increased their approval probability for most single-asset altcoin ETFs to 90%. They cite the “remarkably positive” regulatory discussions as a key factor.
Implications of a Potential Approval
Should the SEC grant approval this week, GDLC would become the first U.S. spot ETF offering regulated exposure to XRP, Solana, and Cardano, albeit in limited amounts. More crucially, this could provide the SEC with vital real-time data on trading activities, flows, and creation-redemption processes, potentially supporting future decisions regarding standalone XRP, Solana, and Cardano funds, anticipated to roll out in 2025.
As the financial community waits eagerly, the final decision is expected by the end of business hours on Wednesday, setting the stage for what could be a transformative period in the crypto investment landscape.
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