Grayscale Files to Convert $524M Digital Large Cap Fund into ETF

Grayscale's Digital Large Cap Fund Conversion: New Era for Crypto ETFs

Grayscale Investments, a prominent crypto asset manager, has taken a significant step by filing with the United States Securities and Exchange Commission (SEC) to convert its $524 million Digital Large Cap Fund into an exchange-traded fund (ETF). 

This move aims to provide easier access for investors to buy and sell shares in a fund that tracks multiple cryptocurrencies, including Bitcoin (BTC), Ether (ETH), Solana (SOL), XRP, and Avalanche (AVAX).

Grayscale's Digital Large Cap Fund Conversion

On October 14, the New York Stock Exchange (NYSE), on behalf of Grayscale, submitted a 19b-4 filing to the SEC. This filing requests a rule change to allow the listing of the new ETF. The Digital Large Cap Fund currently manages assets worth over $524 million, with a composition heavily weighted towards:

• Bitcoin (BTC): 76%

• Ether (ETH): 18%

• Solana (SOL)

• XRP (XRP)

• Avalanche (AVAX)

In an accompanying 8-K form, Grayscale informed its investors about the proposed changes. Converting the fund into a spot ETF would simplify the process for investors, allowing them to more easily buy and sell shares.

Previous Conversions and Market Impact

This filing follows two major conversions earlier in the year, where the SEC approved Grayscale’s requests to convert its Bitcoin Trust (GBTC) and Ethereum Trust (ETHE) into ETFs. This marked a significant shift, as the SEC had previously rejected all applications for spot crypto ETFs until an August court ruling in favor of Grayscale changed the regulatory landscape.

Spot ETFs hold the underlying assets directly, unlike trusts and other non-spot crypto funds that rely on futures contracts to track prices. This distinction makes spot ETFs more straightforward for investors to trade.

Following the conversion of GBTC and ETHE to ETFs, investors began selling their shares due to changes in the discount to net asset value of the funds. Six months before GBTC's conversion, shares were available at a 44% discount compared to buying spot Bitcoin ETF. This discrepancy disappeared post-conversion, leading investors to cash out.

Expanding Grayscale's ETF Suite

The conversion of the Digital Large Cap Fund into an ETF would expand Grayscale’s existing suite of crypto ETFs. Currently, the fund trades over-the-counter and tracks the Large Cap Select Index, offering diversified exposure to major cryptocurrencies by market capitalization.

Despite challenges, including significant outflows from GBTC and ETHE, Grayscale remains committed to exploring new opportunities. The filing for the Digital Large Cap Fund conversion marks another potential ETF launch for the firm this year, following a renewed interest in the market for ETFs linked to smaller tokens like XRP, Solana, and Litecoin.

Grayscale's spokesperson expressed confidence in the product's future, highlighting the growing demand for diversified access to leading digital assets. If approved by the SEC, the fund will trade on the NYSE, providing investors with a more accessible and regulated option for investing in a diversified portfolio of cryptocurrencies.

Also Read: Ripple's Global Growth: Enhancing XRP for Cross-Border Payments