Grayscale's Battle With SEC Over ETF Conversion

By: Eliza Bennet

Grayscale Asset Management, a prominent digital asset management firm, is challenging the United States Securities and Exchange Commission's (SEC) decision to delay the approval of its Digital Large Cap Fund (DLCF) into an exchange-traded fund (ETF). This controversy began after the SEC initially approved the ETF conversion through its Division of Trading and Markets, only for the Office of the Secretary to subsequently halt the process for a review.

In a letter dated July 8, Grayscale's legal team argued that the SEC's action exceeded its authority. They noted that the statutory deadline for approval or disapproval of the application had passed, which should have automatically led to the ETF's approval. The asset management firm insisted that the SEC's imposition of a stay violated the 240-day deadline mandated by U.S. law, stating, "The 45/90/180/240-day timetable for approval or disapproval is set in stone, and the statute provides no authority to the Commission to extend it, by rule or otherwise."

Grayscale's Digital Large Cap Fund handles approximately $775 million in assets, including notable cryptocurrencies like Bitcoin, Ethereum, Solana, XRP, and Cardano. The firm is concerned that ongoing delays are detrimental not only to its operations but also to its investors. Grayscale indicated that it might consider filing petitions to lift the stay and proceed with launching the ETF.Here is more information on SEC processes.

Legal experts, like Scott Johnson, interpret Grayscale's challenges as an expression of frustration with the prolonged approval process rather than an intent to pursue litigation. Grayscale is keen on expediting its product launch to remain competitive, especially with contenders like Bitwise's BITW allegedly gaining investor interest. As the legal dispute continues, the investment community watches closely, eager to see how this precedent could impact the broader crypto market's regulatory landscape.