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Grayscale’s Digital Large-Cap Fund gets SEC approval to convert into an ETF, reducing arbitrage opportunities.
Author: Akshat Thakur
In a significant move for the crypto investment space, the US Securities and Exchange Commission (SEC) has approved Grayscale’s Digital Large-Cap Fund conversion into an exchange-traded fund (ETF). This approval marks the latest development in Grayscale’s long-standing efforts to convert its cryptocurrency trusts into ETF structures, reducing arbitrage opportunities that have historically existed due to pricing discrepancies between trust shares and the underlying assets.
The fund, now officially rebranded as an ETF, holds the five largest cryptocurrencies by market capitalization as per the CoinDesk Five Index. Bitcoin (BTC) remains the dominant asset, representing 80.2% of the portfolio. Other cryptocurrencies in the fund include Ether (ETH) at 11.3%, Solana (SOL) at 2.7%, XRP (XRP) at 4.8%, and Cardano (ADA) at 0.81%.
One of the key changes with the ETF conversion is the end of the arbitrage opportunities that were once common with Grayscale’s crypto trusts. These opportunities arose from differences between the net asset value (NAV) of the funds and their market trading prices. The previous absence of in-kind redemptions, combined with the lock-up periods, allowed savvy investors to exploit these price discrepancies.
With the transition to an ETF, the fund’s value now directly reflects the prices of the underlying assets, less expenses and liabilities, making the pricing more transparent and reducing the window for arbitrage.
Grayscale’s journey to ETF status was not a smooth one. In June 2022, the company petitioned the SEC for permission to convert its Bitcoin Trust into an ETF. The SEC initially denied the request, citing concerns over market manipulation and investor protection. However, in August 2023, a US judge ruled in favor of Grayscale, finding that the SEC’s denial was “arbitrary and capricious” and allowing Grayscale to move forward with its Bitcoin ETF.
This landmark legal victory set the stage for further approval of Grayscale’s crypto funds, including the recent Digital Large-Cap Fund ETF conversion.
The approval of Grayscale’s ETF represents a milestone in the maturation of the cryptocurrency investment industry. It signals a shift from private trusts and high-fee products to more regulated, accessible financial vehicles. Grayscale’s Bitcoin ETF now boasts the highest expense ratio among Bitcoin ETFs at 1.5%, and it has rapidly become one of the highest-grossing BTC investment vehicles.
Institutional and retail investors are seeking regulated, transparent, and liquid crypto investments. Grayscale’s ETF approval could drive more mainstream adoption of cryptocurrency.
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