Grayscale, a leading crypto asset manager, has officially filed with the U.S. Securities and Exchange Commission (SEC) to convert its $524 million Digital Large Cap Fund — which tracks a basket of major cryptocurrencies — into an exchange-traded fund (ETF). The request was made through a 19b-4 filing submitted on October 14, which asks the SEC to approve changes that would allow the fund to be listed as an ETF on the New York Stock Exchange (NYSE).
Details of Grayscale’s Fund
Grayscale’s Digital Large Cap Fund manages assets worth over $524 million. The fund has a significant 76% allocation to Bitcoin (BTC), with 18% allocated to Ether (ETH), and the remaining portion distributed among other cryptocurrencies such as Solana (SOL), XRP, and Avalanche (AVAX).
The move to convert the fund into an ETF is significant, as it would allow investors to more easily buy and sell shares in the fund, potentially increasing liquidity and market access.
Conversion to an ETF: A Game Changer
A spot ETF directly holds the underlying assets, such as Bitcoin or Ethereum, on its books, as opposed to crypto funds or trusts that typically use futures contracts to track prices. This distinction between spot and futures ETFs is crucial for investors, as spot ETFs generally have lower regulatory complexities and are more straightforward to trade. Grayscale’s filing to convert the Digital Large Cap Fund into a spot ETF follows the SEC’s recent approval of similar conversions for the firm’s Bitcoin Trust (GBTC) and Ethereum Trust (ETHE) earlier this year.
The SEC had previously rejected all applications for spot crypto ETFs until a court ruling in August 2024 sided with Grayscale, compelling the regulator to reconsider its stance on approving crypto ETFs. This legal victory was a turning point, as it led to the SEC approving the GBTC and ETHE conversions into ETFs, marking a shift in the regulatory landscape for crypto investment products.
Market Reaction and Outflows
Following the conversion of the Grayscale Bitcoin Trust (GBTC) into an ETF, investors saw a sharp shift in the discount at which they could buy shares. Prior to the conversion, GBTC traded at a 44% discount to the spot price of Bitcoin, allowing investors to purchase shares at a bargain. However, after the conversion to a spot Bitcoin ETF, this discount was eliminated, and GBTC shares traded in line with the actual market value of Bitcoin.
This change led to significant outflows from Grayscale’s funds. Since the conversion of GBTC in January 2024, the fund has experienced $21 billion in outflows. Similarly, ETHE, which converted in July 2024, has seen $3 billion in outflows. These outflows reflect the volatility and shifting investor sentiment that often accompanies regulatory transitions, as well as the potential impact of new ETF structures on traditional crypto trusts.
New Investment Products and Altcoins
In addition to its ETF conversion efforts, Grayscale has continued to expand its portfolio of crypto investment products. On October 10, the firm announced it was considering 35 new altcoins for potential future investment products. Among the coins under consideration are Dogecoin (DOGE), Worldcoin (WLD), and Jupiter (JUP), signaling a broader interest in diverse digital assets beyond Bitcoin and Ethereum.
Grayscale has also been actively launching new crypto funds. In October 2024, the firm introduced a new Aave investment fund, following the release of an XRP Trust in September and an Avalanche Fund in August.
Conclusion
Grayscale’s move to convert its Digital Large Cap Fund into an ETF is a significant step for both the firm and the crypto investment space as a whole. The spot ETF structure, which directly holds digital assets, provides a simpler, more accessible investment vehicle compared to traditional crypto trusts that rely on futures contracts. With its GBTC and ETHE funds already converted to ETFs, the filing to convert its multi-crypto fund underscores Grayscale’s commitment to expanding crypto investment products and responding to shifting market demands.
Despite some initial outflows post-conversion, Grayscale’s continued expansion into new crypto assets suggests the firm remains optimistic about the growing interest in altcoins and the broader adoption of digital assets by mainstream investors. With the SEC now more amenable to crypto ETFs, Grayscale is positioning itself to be at the forefront of this rapidly evolving market.
