Grayscale Challenges SEC Over Delayed Digital Large Cap Fund ETF Approval

Grayscale Investments has formally challenged the U.S. Securities and Exchange Commission's (SEC) decision to delay the approval of its Digital Large Cap Fund ETF. The SEC's Division of Trading and Markets initially approved the ETF proposal under delegated authority, but the Office of the Secretary subsequently placed the decision under review. Grayscale's legal team argues that this action violates statutory approval deadlines set by federal regulations, specifically Section 19(b)(2)(D), which mandates automatic approval for delayed decisions.

The Digital Large Cap Fund, which manages $755 million in assets across Bitcoin, Ethereum, XRP, Solana, and Cardano, is poised to become the largest multi-token digital asset ETF globally. The fund tracks the CoinDesk 5 Index, with Bitcoin comprising 80% of its holdings. The regulatory standoff affects thousands of current investors who are awaiting enhanced liquidity. The delay prevents retail investors from accessing diversified crypto exposure through traditional brokerage accounts, a significant setback given the growing institutional demand for crypto assets.

Grayscale's challenge comes at a time when the regulatory landscape for cryptocurrencies is evolving. The firm previously won a court battle that led to Bitcoin spot ETF approvals in January 2024, and industry observers view this as a test case for future altcoin ETF approvals. The delay reflects broader tensions over crypto asset classification policies and the need for transparent regulatory frameworks. Current SEC Chairman Paul Atkins has advocated for such frameworks over enforcement-based oversight.

Multiple asset managers, including Bitwise, Franklin Templeton, and Hashdex, are awaiting similar decisions on their crypto basket fund applications. The Bitwise 10 Crypto Index Fund conversion deadline falls on July 31, 2025. Analysts believe the SEC may approve multiple products simultaneously under unified standards, which could expedite the approval process for altcoin ETFs. However, the review process lacks defined timelines, creating uncertainty for pending applications and monitoring by traditional finance institutions considering expanding crypto investment offerings.

The outcome of this regulatory standoff could determine whether altcoin ETFs receive expedited approval processes or face continued regulatory scrutiny. Industry experts predict resolution by late 2025 as the SEC finalizes comprehensive crypto ETF policies. The controversy underscores the ongoing tensions between regulatory bodies and the cryptocurrency industry, as well as the complexities involved in integrating digital assets into traditional financial markets. Grayscale's challenge highlights the importance of regulatory clarity and the potential benefits for investors and the broader market.