SEC Halts Grayscale’s Digital Large Cap Fund ETF Approval

The U.S. Securities and Exchange Commission (SEC) has paused the approval of Grayscale’s Digital Large Cap Fund ETF (GDLC) just one day after granting it approval. This decision triggered an automatic stay, halting the fund's conversion into an exchange-traded product. The SEC's Division of Trading and Markets had initially approved the GDLC ETF on an accelerated basis, reflecting confidence in the product’s readiness. However, the Commission exercised its right to review the decision under Rule 431, leading to the stay. The SEC has not provided a timeline for the review or any next steps.

The GDLC fund, which Grayscale sought to convert from last year, holds a basket of top cryptocurrencies, including Bitcoin, Ethereum, XRP, Solana, and Cardano. Bitcoin and Ethereum make up over 90% of the portfolio, while the remaining 10% consists of altcoins. These altcoins face ongoing regulatory uncertainty in the U.S., which may have contributed to the delay. Unlike single-asset ETFs, multi-asset products introduce added complexity, including legal questions around classification and investor disclosures. The Commission’s intervention may reflect concerns tied to the unsettled status of certain tokens, as Ethereum has already received spot ETF approval, while other altcoins have not.

Market observers believe the stay could signal a broader regulatory strategy. The SEC may seek a more consistent framework before allowing multi-asset crypto ETFs. This could involve coordinated approvals of single-asset ETFs for altcoins, helping to standardize listing rules and promote fairness among issuers. Some analysts expect altcoin spot ETFs to gain approval by the end of 2025. Until then, their inclusion in the GDLC ETF may delay broader product acceptance. The SEC’s decision appears to align with this cautious path.

The fund’s structure would have introduced in-kind redemption and shifted away from a closed-end format. Grayscale aimed to offer diversified exposure while keeping Bitcoin at the core. The GDLC fund holds $775 million in assets under management, with Bitcoin making up nearly 80% and Ethereum contributing about 12%. The Commission is reportedly working with exchanges to develop new listing standards. These rules could cover token liquidity, volume, and market cap. If finalized, they may eliminate the need for product-by-product approval under Rule 19b-4. Grayscale’s ETF remains in regulatory limbo as the SEC shapes its digital asset policy.