The SEC halted Grayscale’s ETF conversion due to concerns over altcoins like XRP and Solana lacking clear regulatory status.
The review of GDLC’s ETF signals the SEC’s caution toward multi-asset crypto funds with legally ambiguous token holdings.
A unified ETF approval framework is being explored, potentially allowing faster approvals for crypto baskets like GDLC and Bitwise.
The U.S. Securities and Exchange Commission (SEC) has unexpectedly halted the conversion of Grayscale’s Digital Large Cap Fund (GDLC) into a multi-asset spot ETF. The move reverses a prior staff-level approval granted to NYSE Arca on July 1 under an amended rule. While the initial green light came with accelerated status, the Commission quickly exercised its authority to review the decision under Rule 431, placing the approval on indefinite hold. This development has disrupted what was expected to be a breakthrough moment for diversified crypto investment products in the U.S.
Tokens With Unsettled Status May Have Sparked Scrutiny
GDLC holds a portfolio that includes Bitcoin, Ethereum, XRP, Solana, and Cardano. Together, BTC and ETH make up more than 91% of the fund. However, the inclusion of altcoins facing unresolved regulatory status appears to be the trigger behind the SEC’s intervention. XRP, Solana, and Cardano have all been linked to ongoing legal and compliance uncertainty. Consequently, the Commission might be concerned about investor protections and the legal clarity surrounding these assets.
Moreover, analysts suggest that the Commission’s review reflects deeper concerns beyond just GDLC. The unique complexities tied to multi-asset ETFs demand higher scrutiny. Unlike single-asset products such as the Bitcoin ETF, baskets of various tokens raise intricate questions on disclosure and compliance. Besides, the review signals that internal debate within the SEC is likely ongoing.
Unified Standards Could Change the ETF Landscape
The SEC’s recent move comes at a time when discussions around standardizing crypto ETF approvals are gaining traction. Recent reports suggest that exchanges and regulators are drafting a generic listing framework for token-based ETFs. This would allow issuers to file only a Form S-1, bypassing the need for individual Rule 19b-4 filings for each product. Hence, the new system would streamline approvals and set clear criteria around market cap, liquidity, and trading volume.
Additionally, other ETF applications from Bitwise, Hashdex, and Franklin Templeton are awaiting approval. Bloomberg’s Eric Balchunas believes the SEC could be holding off on GDLC to clear all applications under a unified framework. Notably, the Bitwise deadline on July 31 could offer insights into the SEC’s direction moving forward.
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