On October 14th, Grayscale, a crypto asset management firm, submitted a request to the U.S. SEC (Securities and Exchange Commission) to transform its diversified crypto fund into an ETF.
Currently, Grayscale’s Digital Large Cap (GDLC) fund manages assets worth $524 million and covers Bitcoin [BTC], Ethereum [ETH], Solana [SOL], Ripple [XRP], and Avalanche [AVAX].
Bitcoin and Ethereum are the primary components of the fund, accounting for over 90% of its total value.
If the proposal is approved, the ETF will be listed on the NYSE (New York Securities Exchange) according to the application. Additionally, in a separate submission, the asset management firm informed its investors about the planned changes to the fund.
Race for Crypto Index ETFs
Transforming a fund into a standard ETF simplifies the process of buying and selling shares. Grayscale has already converted two funds connected to Bitcoin (GBTC) and Ethereum (ETHE) into standard ETFs earlier this year.
However, currently, only Bitcoin and Ethereum are considered commodities by the SEC. In fact, other entities seeking approval for similar crypto index ETFs, such as Hashdex and Franklin Templeton, have only included Bitcoin and Ethereum in their proposals.
Interestingly, Grayscale has gone even further by including Ripple, which is facing regulatory uncertainty due to an ongoing lawsuit with the SEC.
According to Nate Geraci from ETF Store, this move could be a bet on a potential shift in the regulatory environment following the U.S. elections in November. He commented,
“It seems like issuers are banking on a potential change in administration… Essentially preparing for a scenario where there is a change in favor of a more crypto-friendly administration.”
On the other hand, Presto Research, a research firm specializing in cryptocurrencies, sees this application as a potential step towards approval for altcoin ETFs.
“The approval of this ETF could open the door for future altcoin ETFs, including assets like Solana, Ripple, and Avalanche, which currently face regulatory uncertainty under the current SEC guidelines.”
However, analysts at Prestor Research also cautioned that the road ahead for the application may not be smooth, referencing difficulties faced by spot Solana ETFs during August.
That being said, Grayscale’s converted ETFs have experienced significant outflows, evident in GBTC and ETHE. Following their transformation, GBTC has recorded outflows of over $20 billion while ETHE has seen nearly $3 billion in withdrawals.
The outcome of the application post the U.S. elections is yet to unfold, raising questions about the potential approval of other altcoins with unresolved regulatory standings.