Grayscale Files To Convert $520M Multi-Crypto Fund Into Spot ETF

Grayscale, the massive cryptocurrency asset manager overseeing $14.74 billion, is seeking to convert a multi-asset crypto fund into a spot exchange-traded fund (ETF).

On Oct. 15, the New York Stock Exchange (NYSE) Arca, submitted a 19b-4 filing on Grayscale’s behalf petitioning the U.S. Securities and Exchange Commission (SEC) to allow the conversion of Grayscale’s Digital Large Cap Fund into a spot ETF.

The fund currently holds $520 million in assets, 76% of which is invested in Bitcoin while 18% is allocated to Ethereum. The fund also invests 4.16% of its capital in Solana (SOL), 1.76% in Ripple (XRP), and 0.66% in Avalanche (AVAX).

If approved, this conversion would make it Grayscale’s first multi-token ETF, offering investors exposure to a basket of digital assets in a single, tradeable product.

This latest filing marks Grayscale’s fifth ETF-related action in 2024, following the conversions of the Grayscale Bitcoin Trust (GBTC) and the Grayscale Ethereum Trust (ETHE), along with two mini versions of these funds launched earlier this year.

Securities status

However, the SEC has described SOL as an unregistered security on multiple occasions, suggesting the regulator may be unreceptive to Grayscale’s effort to allow its Digital Large Cap Fund as an ETF.

Regulated futures products also haven’t entered the U.S. market for SOL, XRP, or AVAX, with the SEC citing the existence of robust futures markets for BTC and ETH as a major consideration when approving Bitcoin and Ethereum ETFs earlier this year.

Nevertheless, VanEck, the nearly $90 billion investment management firm, filed to launch a spot Solana ETF in June.

The SEC also sued Ripple Labs in 2020 alleging it violated securities laws through XRP sales. However, a U.S. court found that XRP and other cryptocurrencies do not inherently comprise securities assets, regardless of whether primary distributions occurred via securities investments contracts, in a landmark ruling in July 2023.

On Oct. 2, Bitwise filed to launch a spot XRP ETF, followed by a rival filing from Canary Capital on Oct. 8.

Canary Capital also applied to launch a spot Litecoin (LTC) ETF on Oct. 15. In April, Coinbase launched the first Litecoin futures contracts regulated by the U.S. Commodity Futures Trading Commission.

The Road to Spot ETFs

The approval of spot Bitcoin and Ethereum assets did not come without a fight, with Grayscale first filing to convert its Grayscale Bitcoin Trust (GBTC), an exchange-traded product (ETP), into an ETF in 2016. However, grayscale withdrew its bid one year later after its application was poorly received by the SEC.

In October 2021, Grayscale again filed to convert GBTC into a spot ETF, which the SEC rejected in June 2022. However, Grayscale sued the SEC and secured a court victory in August 2023 — forcing the SEC to reconsider its ruling. Grayscale was among seven asset issuers that also applied for Ethereum ETFs that month.

In January 2024, the SEC greenlit spot Bitcoin ETFs to enter the market, before approving spot Ethereum ETFs in May.

Grayscale trusts proliferate

Grayscale’s roster of cryptocurrency trusts has rapidly expanded in recent years, with the firm currently offering 20 single-asset funds and four multi-asset funds.

Grayscale’s trusts comprise exchange-traded products (ETPs), which unlike ETFs are not registered under the Investment Company Act of 1940. This means the funds are not subject to the same regulatory requirements as the 1940 Act, and cannot be offered to the investing public.

Grayscale’s single-asset products include trusts offering exposure to AVAX, XRP, and SOL. Grayscale launched its latest ETP, the Grayscale Aave Trust, on Oct. 3.

On Oct.10, Grayscale listed 35 altcoins among the assets it is considering for future trusts, including Dogecoin (DOGE), Worldcoin (WLD), and Jupiter (JUP).