Grayscale’s Digital Large Cap Fund Approved as Spot ETF by SEC

The U.S. Securities and Exchange Commission has officially approved Grayscale’s Digital Large Cap Fund to transition into a spot exchange-traded fund (ETF), marking a significant milestone in the evolution of crypto investment products. This approval allows the fund to list and trade on NYSE Arca, shifting from a private trust to a fully regulated ETF that tracks a diversified portfolio of leading cryptocurrencies. The fund, which tracks the CoinDesk 5 Index, includes top digital assets such as Bitcoin (BTC), Ethereum (ETH), XRP, Solana, and Cardano. This move reflects growing regulatory acceptance of multi-asset crypto ETFs, potentially paving the way for similar products from other major asset managers.

The transition from an over-the-counter trust to an ETF structure allows for enhanced liquidity, transparency, and regulatory oversight. Investors can now access a diversified basket of leading cryptocurrencies through a regulated vehicle listed on the NYSE Arca exchange. The SEC’s accelerated rulemaking process not only approved Grayscale’s ETF conversion but also amended NYSE Arca’s rules to accommodate ETFs structured as limited liability companies tracking index portfolios. A key regulatory requirement mandates that at least 85% of the fund’s assets must be digital assets underlying SEC-approved exchange-traded products. This threshold ensures the fund maintains a compliant asset composition, with mechanisms in place to rebalance or pause trading if limits are breached. Such regulatory safeguards aim to protect investors while fostering innovation in crypto asset management.

Grayscale’s successful conversion sets a precedent for other asset managers seeking to launch diversified crypto ETFs. Firms like Bitwise, Hashdex, and Franklin Templeton have filed similar proposals, signaling increased institutional interest in regulated multi-asset crypto funds. Grayscale’s fund, with a current composition heavily weighted towards Bitcoin and Ethereum, offers investors exposure to a curated selection of high-performing digital assets, enhancing portfolio diversification. The ETF’s daily NAV calculation and cash-settled share creation/redemption process provide operational efficiency and investor flexibility.

Grayscale’s journey to ETF approval was bolstered by a 2023 federal court ruling that deemed the SEC’s prior rejection of its Bitcoin ETF application as “arbitrary and capricious.” This legal victory enabled Grayscale to convert its Bitcoin trust into an ETF with an expense ratio of 1.5%, the highest among its peers but justified by the fund’s comprehensive management and regulatory compliance. The Digital Large Cap Fund’s approval further solidifies Grayscale’s position as a pioneer in the regulated crypto investment space, potentially influencing regulatory approaches and market standards for future crypto ETFs.

Grayscale’s Digital Large Cap Fund approval as a spot ETF marks a significant advancement in regulated crypto investment products, offering investors diversified exposure to major digital assets within a transparent and compliant framework. This development not only enhances market liquidity but also sets a regulatory benchmark for forthcoming multi-asset crypto ETFs. As institutional interest grows, Grayscale’s leadership and the SEC’s evolving stance are likely to shape the future of crypto asset management, encouraging broader adoption and innovation in the sector.