Grayscale, the largest digital asset management firm, has taken steps to convert its Digital Large Cap Fund into an Exchange-Traded Fund (ETF). The fund, which includes popular cryptocurrencies like Bitcoin, Ethereum, Solana, XRP, and Avalanche, is currently awaiting approval from the U.S. Securities and Exchange Commission (SEC). This move by Grayscale demonstrates the company’s ambition to expand and solidify its position in the crypto ETF market.
Grayscale is not new to the ETF market. With the support of the Digital Currency Group, the company has played a significant role in advocating for spot Bitcoin ETFs in the United States. They recently achieved a major victory against the SEC in their efforts to convert the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Since then, Grayscale has focused on growing its ETF business, including the recent approval to convert the Ethereum Trust into a spot ETF.
To convert its Digital Large Cap Fund into an ETF, Grayscale has filed a 19b-4 form, seeking approval from the SEC. Currently, investors have the opportunity to invest in a diversified portfolio of top cryptocurrencies through the fund. However, converting the fund into an ETF will enhance accessibility for investors and provide increased liquidity.
Wall Street continues to show growing interest in cryptocurrency products, with more institutional players entering the market. Nate Geraci, President of the ETF Store, recently highlighted the increasing interest in crypto-based ETFs, noting that investors are shifting their focus towards these products.
The conversion of the Digital Large Cap Fund follows two other significant actions taken by Grayscale this year. Prior to these actions, the SEC had granted Grayscale’s requests to convert its Bitcoin Investment Trust (GBTC) and Ethereum Investment Trust (ETHE) into ETFs. These moves to ETFs have brought about significant changes in the market and investor behavior.
Previously, GBTC shares were trading at a discount of up to 44% to the spot price of Bitcoin. This discount made it attractive for investors to purchase Bitcoin at a lower price through the trust. However, after the conversion to an ETF, the discount disappeared, and GBTC traded at a premium or at par with the underlying Bitcoin. Consequently, many investors sold their shares to take advantage of the new pricing. Since then, crypto assets like GBTC have seen outflows of $21 billion, and the ETH ETF experienced a $3 billion outflow after its conversion in July.
The US Securities and Exchange Commission has historically been hesitant to approve spot crypto ETFs. However, these recent developments suggest a potential shift in their stance. Grayscale’s previous legal victory in the Bitcoin ETF case sets a precedent, and the company may rely on the same argument if the SEC does not promptly approve the conversion of the Digital Large Cap Fund.
In the meantime, other companies are also actively pursuing new ETF products. Canary Capital, for instance, has applied to launch a Litecoin ETF and recently filed for an XRP ETF.