In a surprising move, the U.S. Securities and Exchange Commission (SEC) has suspended its own approval of Grayscale Investments’ plan to convert its Digital Large Cap Fund (GDLC) into a spot exchange-traded fund (ETF), just one day after greenlighting the proposal.
On July 1, the SEC’s Division of Trading and Markets had granted accelerated approval for NYSE Arca to list and trade GDLC shares, signaling early regulatory confidence. However, within 24 hours, the Commission invoked Rule 431 of its Rules of Practice to review the decision automatically staying the approval until further notice.
The reversal adds a sudden twist to what had been viewed as a landmark development for diversified crypto ETFs in the U.S, potentially delaying wider access to multi-asset digital investment products.
Fund composition raises regulatory flags
The Grayscale Digital Large Cap Fund, launched in 2018, is composed primarily of Bitcoin and Ethereum, which together account for more than 91% of its holdings. The remaining allocation includes altcoins such as XRP, Solana, and Cardano each of which carries some level of regulatory uncertainty in the United States.
While single-asset ETFs tied to Bitcoin have recently received SEC approval, the introduction of multi-asset crypto ETFs brings greater complexity. The legal status of several altcoins remains unresolved, which could raise issues related to investor disclosures, asset classification, and market manipulation risks.
SEC reviews of this nature are rare and typically indicate internal concerns over market readiness, investor protection, or legal clarity.
Analysts cite broader policy concerns
Industry observers say the SEC’s action may reflect broader caution around setting a precedent before crypto ETF regulation is standardized. Bloomberg ETF analyst Eric Balchunas noted that the pause likely signals a desire to “wait until a more comprehensive framework for crypto ETPs is in place.
Grayscale’s filing comes amid renewed optimism for digital assets, buoyed by shifting political sentiment and bipartisan interest in clearer crypto regulation. However, the SEC’s decision shows that despite the changing landscape, regulatory scrutiny still dominates the ETF approval process.
The agency has provided no deadline for the review or guidance on potential next steps, leaving both Grayscale and NYSE Arca in limbo.
Delay highlights uncertainty for crypto ETFs
The halted approval underscores the challenges of bringing diversified crypto funds to public markets. While Bitcoin ETFs have made significant progress, multi-asset products remain a gray area in the eyes of regulators.
Until the SEC completes its review, the GDLC ETF conversion will remain on hold, with no launch date in sight. The decision may also affect other asset managers considering similar products, as firms await clearer rules on the inclusion of altcoins in regulated ETFs.