SEC grants approval for Grayscale’s large-cap cryptocurrency fund to be changed into an ETF

Grayscale Gets Approval for ETF Conversion

On Tuesday, the U.S. Securities and Exchange Commission (SEC) gave the green light for asset manager Grayscale to transform its substantial digital fund into an Exchange Traded Fund (ETF).

This fund includes the five largest cryptocurrencies based on market capitalization, as outlined in the Coindesk Five Index.

Bitcoin (BTC) dominates, making up about 80.2% of the fund, with ether (ETH) at 11.3%. Solana (SOL) contributes roughly 2.7%, XRP (XRP) has around 4.8%, and Cardano’s ADA (ADA) accounts for 0.81% of the total.

For quite some time, investors have leveraged arbitrage opportunities within Grayscale’s crypto trusts—using the fluctuations between premiums or discounts relative to the net asset value (NAV) to secure profits.

Much of this variance stemmed from the lock-up period associated with Grayscale’s crypto trusts, combined with the absence of physical asset redemptions. However, as Grayscale shifted its focus toward ETF conversions for private digital assets, these arbitrage options have started to fade. A letter from the SEC on Tuesday stated:

“The Fund’s investment objective is to reflect the value of the digital assets held by the Fund’s ‘Fund Component,’ with the value of the shares influenced by the respective index price and weighting of the Fund, considering costs and other liabilities.”

Grayscale has been a trailblazer in crypto investment products, allowing investors to gain exposure to digital assets without the complexities of direct crypto ownership. With this change, it marks a shift in the landscape—suggesting a new era for the industry.

Grayscale’s Legal Fight for ETF Conversion

Back in June 2022, Grayscale took legal action to pursue the conversion of its Bitcoin trust into an ETF after the SEC had turned down its initial request.

After a year-long legal battle, a U.S. judge ruled in favor of Grayscale in August 2023, criticizing the SEC for being “arbitrary and whimsical” in its denial.

Now, Grayscale’s Bitcoin Trust is functioning as an ETF with an expense ratio of 1.5%, making it the most costly Bitcoin ETF available and a leading investment option for Bitcoin enthusiasts.