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- Grayscale seeks SEC approval to convert its $524M Digital Large Cap Fund into an ETF, focusing heavily on Bitcoin (76% of assets).
- Following court victories, Grayscale aims to enhance liquidity and simplify trading by shifting from futures to spot ETFs.
- Despite ETF conversions, Grayscale faces challenges, with $21B in outflows from its Bitcoin fund and $3B from its Ethereum ETF.
Grayscale, a prominent cryptocurrency asset manager, has officially asked the Securities and Exchange Commission (SEC) for approval to transform its $524 million Digital Large Cap Fund into an exchange-traded fund (ETF). The NYSE submitted a 19b-4 application for Grayscale on October 14. This petition requests the SEC to change current regulations to allow for a new ETF to enter the market.
Focus on Major Cryptocurrencies
The main concentration of the Digital Large Cap Fund is on major cryptocurrencies. Currently, Bitcoin makes up 76% of the total assets, with 18% allocated to Ether. The remaining portion of the funds is distributed among other digital currencies, such as Solana, XRP, and Avalanche. The goal of this modification is to make it easier for investors to buy and sell fund shares.
This latest move comes after several significant modifications in the crypto ETF industry. The SEC granted approval earlier this year to Grayscale’s efforts to transform its Grayscale Ethereum Trust (ETHE) and Grayscale Bitcoin Trust (GBTC) into exchange-traded funds.
The SEC has reversed course after previously refusing all applications for exchange-traded funds (ETFs) backed by bitcoin. A significant decision in court in August benefited Grayscale and caused the regulator to reassess its strategy.
Market Dynamics and Future Prospects
Spot ETFs differ from traditional trusts, as they hold the underlying assets directly on their balance sheets. In contrast, non-spot crypto funds typically rely on futures contracts to track prices. This reliance has often complicated the buying and selling process for investors. Grayscale’s conversion to ETFs aims to simplify this process and enhance liquidity for shareholders.
Investors have responded variably to previous conversions. After the GBTC conversion, many investors opted to cash out. In fact, prior to the conversion, shares could be purchased at a 44% discount to the price of spot Bitcoin, per YCharts data. This significant discrepancy in pricing has since diminished, as the fund’s structure changed.
However, the market dynamics have not favoured Grayscale entirely. Since the conversion of its Bitcoin fund in January, the company has experienced $21 billion in outflows. Similarly, the Ethereum ETF has seen approximately $3 billion in outflows since its conversion in July. These trends highlight the challenges faced by Grayscale amidst evolving market conditions.
Furthermore, on October 10, Grayscale expanded its horizons by adding 35 altcoins to its list of potential investment products. Notable inclusions are Dogecoin, Worldcoin, and Jupiter. The firm has also been proactive in launching new investment funds. Recent offerings include an Aave investment fund unveiled on October 3, an XRP Trust introduced on September 12, and an Avalanche fund launched on August 22.