Grayscale Challenges SEC Delay on Digital Large Cap ETF Approval

Grayscale, a leading digital asset manager, has formally contested the US Securities and Exchange Commission’s (SEC) delay in approving its Digital Large Cap exchange-traded fund (ETF). In a letter sent on Tuesday, Grayscale’s legal team argued that the SEC’s delay in deciding on the ETF proposal breaches existing laws and established procedures. Initially, the SEC’s Division of Trading and Markets had given the green light to the ETF proposal, but the SEC’s Office of the Secretary subsequently chose to review the decision, effectively putting it on hold.

According to Grayscale’s attorneys, this delay goes against the “statutory approval or disapproval deadline” set by the SEC. The letter underscored that missing this deadline has clear consequences: under Section 19(b)(2)(D), the rule proposal is automatically approved. Grayscale maintains that the delay is detrimental to the company, the exchange, and the fund’s current investors, as it hinders the public launch of the fund.

The transformation of Grayscale’s crypto-based trusts into ETFs is viewed as a pivotal moment in the evolution of the crypto industry. This shift indicates a move from a specialized market to a mainstream asset class, making crypto investments more available to traditional financial investors. Grayscale’s legal team has opposed the SEC’s delay, asserting that it inflicts unnecessary harm on investors and the industry at large.

The SEC’s delay has ignited conversations about streamlining the ETF approval process for certain crypto investment vehicles. This accelerated process could automate parts of the current application procedures, enabling specific ETF issuers to skip 19b-4 filings altogether. Such a change could pave the way for a range of new digital asset investment vehicles, including altcoin ETFs, tokenized funds, and tokenized stocks, thereby offering traditional market investors broader access to crypto assets.

The heightened exposure and potential capital inflows into the crypto markets could boost asset prices, further integrating crypto into the mainstream financial ecosystem. However, the SEC’s recent actions have left several questions unanswered, particularly concerning the regulatory framework for crypto ETFs. Grayscale’s challenge to the SEC’s stay on its fund underscores the ongoing conflict between regulatory oversight and the need for innovation in the crypto industry.