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Grayscale’s GDLC Transitions to a Spot ETF Following SEC Approval
Grayscale Investments has made headlines with its Digital Large Cap Fund (GDLC) achieving expedited approval from the U.S. Securities and Exchange Commission (SEC) to transition from a closed-end fund into a publicly traded spot exchange-traded fund (ETF). This marks a significant milestone as GDLC becomes the first multi-asset cryptocurrency fund to undergo such a transformation.
Key Highlights:
- The SEC has accelerated the approval process for GDLC’s conversion.
- GDLC is now poised to become the first multi-asset crypto fund to transition to an ETF format.
- This decision follows years of regulatory pushback and a recent court ruling that favoured Grayscale.
SEC’s Approval
The SEC granted its approval on a Tuesday, labelling the proposal “approved on an accelerated basis.” This rapid endorsement is seen as a crucial step in broadening access to cryptocurrency investment products, making them more accessible to a wider investment audience.
The GDLC comprises the five largest cryptocurrencies according to market capitalisation, based on the CoinDesk 5 Index. Its current asset allocation includes Bitcoin (80.2%), Ethereum (11.3%), Solana (2.7%), XRP (4.8%), and Cardano (0.81%). The adoption of the ETF format ensures that the share price of the fund aligns more closely with the actual value of its underlying assets, accounting for expenses and liabilities.
Transition from Closed-End Fund
This newly approved ETF will trade on NYSE Arca, opening its doors to a broader segment of investors compared to its previous closed-end structure, which was limited to accredited investors and only available over the counter. This transformation signals a potential shift in regulatory attitudes towards future ETFs that may cover smaller cryptocurrencies in the market. It follows similar transitions previously made by Grayscale’s Bitcoin and Ethereum Trusts.
Grayscale has had a tumultuous relationship with the SEC, notably suing the regulatory body for rejecting its Bitcoin trust’s conversion to an ETF. In August 2023, a U.S. judge ruled in Grayscale’s favour, labelling the SEC’s rationale as “arbitrary and capricious.” This ruling was pivotal, greatly contributing to Grayscale’s eventual success in securing the necessary approval for both its Bitcoin Trust and the GDLC ETF.
A Maturing Market
Grayscale has been at the forefront of developing cryptocurrency investment products, providing a means for investors to gain exposure to the digital asset market without the need for managing private keys or digital wallets. The shift to an ETF format marks an important evolution in the cryptocurrency landscape and signifies the end of the closed-end fund structure that has dominated so far.
Nate Geraci, President of the ETF Store, suggested that the GDLC’s conversion could act as a trial run for the potential approval of further ETFs, especially considering that the combined holdings of XRP, Solana, and Cardano represent a small fraction (under 10%) of the fund’s total assets.
As the cryptocurrency market continues to develop, the approval of GDLC’s conversion is a landmark moment that might pave the way for further regulatory acceptance and the introduction of additional crypto-based investment products in the future.
In summary, Grayscale’s GDLC ETF conversion signifies more than just a structural change; it embodies the maturation of the cryptocurrency investing landscape and potentially heralds a new era of broad-based investment options in the digital asset space.
