Grayscale’s Digital Large Cap Fund (GDLC) conversion into an exchange-traded fund (ETF) has hit a roadblock with a stay order, despite the SEC’s approval on July 1. Bloomberg ETF analyst James Seyffart revealed on July 2 that the stay order is currently halting the conversion “for now”, with no specified timeline for removal.
Two theories have emerged to explain the temporary blockage. One theory suggests that the SEC may still be scrutinizing GDLC’s structure, while another theory speculates that the SEC is waiting for a broader rule set for token-based ETFs to be finalized before allowing the conversion to proceed. Additionally, it is believed that the SEC may be waiting for the first spot ETFs tracking Solana, Cardano, and XRP to launch before granting approval to Grayscale’s multi-asset fund.
The approval granted by the SEC amended NYSE Arca Rule 8.500-E, paving the way for GDLC’s units to be traded on the exchange once operational details are resolved. GDLC currently holds assets in Bitcoin, Ethereum, Solana, XRP, and Cardano, with approximately $775 million in assets under management. Once the stay order is lifted, the fund will shift to an in-kind creation and redemption format, replacing its current closed-end structure.
In a bid to streamline the listing process for token ETFs, recent reports suggest that the SEC and US exchanges are collaborating on establishing a standardized framework. This proposed framework would require issuers to file a Form S-1 and wait 75 days before launching, eliminating the need for individual Rule 19b-4 changes for each product. This initiative is seen as a positive development by industry experts as it would expedite the listing process and provide clear guidelines on market capitalization, trading volume, and liquidity thresholds.
Several other crypto basket funds, including those from Bitwise, Hashdex, and Franklin Templeton, are awaiting SEC approval. It is speculated that the SEC may be holding off on granting full clearance to GDLC in order to evaluate these ETFs under the same standardized framework. Notably, Bitwise’s filing deadline is set for July 31, which could serve as a crucial date to watch for potential developments in the rumored framework.
Overall, the evolution of GDLC into an ETF and the potential establishment of a standardized framework for token ETF listings signal a significant shift in the regulatory landscape for cryptocurrency investments. As the industry continues to mature, investors can expect greater clarity and efficiency in the process of launching and trading crypto-related investment products.