On Tuesday, the Wall Street regulator issued an order finding that it had good cause to approve ETF conversion for the Grayscale product, dubbed the Grayscale Digital Large Cap Fund (GDLC), on an accelerated basis.
Quietly attached to the order, however, was a letter from SEC leadership staying, or pausing, the order indefinitely, “until the Commission orders otherwise.” Bloomberg ETF analyst James Seyffart was the first to point out the fine print on Wednesday afternoon.
So — the GDLC was approved, but not really, or at least not yet? What gives?
A few theories are floating around Wall Street. Seyffart himself said that, potentially, the SEC did not want to deny Grayscale’s GDLC ETF application before today’s deadline, but is also currently developing an internal framework for issuing digital asset ETFs, and doesn’t want to approve Grayscale’s fund until the framework is ready for showtime.
Eric Balchunas, another top ETF analyst at Bloomberg, concurred with this reading of events.
While the SEC has approved Bitcoin and Ethereum spot ETFs, it has yet to approve other altcoin spot ETFs including those trading Solana, XRP, and Cardano. Analysts estimate the agency is almost certain to approve such crypto products by the end of the year, though.
When reached by Decrypt, an SEC spokesperson declined to comment on the approval stay or why it was ordered, stating the agency does not comment on any individual funds under its purview.
Grayscale did not immediately respond to Decrypt’s request for comment on the development.
Another theory as to why the SEC approved the product in one agency document, and then pressed pause on the approval in another, centers on internal politics at the regulator. The approval order greenlighting GDLC, which was wholehearted in its finding that the fund should be fast-tracked for imminent trading, came from the SEC’s Division of Trading and Markets.
It’s possible, Seyffart posited Wednesday, that another division of the agency pushed back on the approval and wants to tweak elements of the product before it can trade.
Grayscale’s GDLC fund is currently trading as a closed-end fund. It is comprised of nearly 80% Bitcoin exposure, roughly 12% Ethereum exposure, and less than 5%, 3%, and 1% exposure to XRP, Solana, and Cardano, respectively.
The SEC is currently weighing whether to convert that fund into an ETF.
“[GDLC] can’t convert yet but it will,” Seyffart said Wednesday. “We just don’t know when and we don’t exactly know why the SEC issued this ‘stay’ order.”
