Grayscale Challenges SEC Stay on ETF Conversion

Grayscale Asset Management has contested the US Securities and Exchange Commission's (SEC) decision to issue a stay on its application to convert the Digital Large Cap Fund (DLCF) into an exchange-traded fund (ETF).

In a letter dated July 8, Grayscale’s legal team argued that the SEC overstepped its authority, as the application had already been approved by the SEC staff prior to the stay. The firm contends that the SEC’s imposition of the stay violates the 240-day approval process required by US law. According to Grayscale, the SEC had until the 240th day after the application was filed to approve or reject the proposal. Since the deadline passed without a decision, Grayscale asserts that the application should have been automatically approved.

Grayscale emphasized that if the application were for a public company, the SEC would be bound to follow the timeline, and failure to do so would result in automatic approval. The asset management firm further noted that the SEC’s delays are beginning to harm both the firm and its investors. Considering this, the firm pointed out it might explore filing petitions to lift the stay and launch the ETF while the review continues.

Legal expert Scott Johnson pointed out that Grayscale’s letter indicates frustration with the SEC’s prolonged review rather than a desire for litigation. He explained that Grayscale is eager to launch its product as soon as possible, especially with competitors like Bitwise’s BITW gaining ground. Johnson stated, “The only one that makes sense. Grayscale gave it a few days, and now they’re annoyed its taking the commission too long to review/approve. BITW nipping at the heels and they want to move.”

Grayscale’s Digital Large Cap Fund (GDLC), which holds assets such as Bitcoin, Ethereum, Solana, XRP, and Cardano, is reported to manage approximately $775 million in assets. The firm’s pushback against the SEC’s decision highlights the growing tension between regulatory bodies and the cryptocurrency industry, as well as the increasing competition among asset management firms in the digital asset space.