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Crypto asset manager Grayscale called the U.S. Securities and Exchange Commission's decision to halt the release of its Digital Large Cap Fund "unexpected" in an email to Decrypt Thursday.
The firm said that the Wednesday decision by the regulator—which surprised industry observers—was evidence of a changing regulatory landscape.
"While this development was unexpected, it reflects the dynamic and evolving nature of the regulatory landscape surrounding a first-of-its-kind digital asset product like GDLC," Grayscale said.
The SEC had fast-tracked the conversion of Grayscale's GDLC fund, which focuses on Bitcoin but would give investors exposure to Ethereum, Solana, XRP, and Cardano, into an exchange-traded fund. But the regulator also attached a note saying it would not yet allow the product to start trading.
Grayscale added: "Grayscale remains committed to pursuing the listing of GDLC as an exchange-traded product and we are working closely with key stakeholders to meet all necessary requirements. We will provide further updates as additional information becomes available."
Grayscale's Large Cap fund is modeled on the CoinDesk 5 Index, which measures the performance of the five largest and most liquid digital assets. Bitcoin composes more than 80% of the fund's holdings. Around 11% of the ETF's assets are in Ethereum, with 2.8% in Solana, 4.8% in XRP, and 0.8% in Cardano, according to the SEC filing.
Although the SEC rejected multiple spot Bitcoin ETF applications for more than a decade, the regulator acted relatively quickly in broadening investors' access through GDLC. It approved Grayscale's application a day before it faced a deadline for its decision, while in the past, it had rejected Grayscale's applications at the last minute.
GDLC aims to trade as a full-fledged ETF on NYSE Arca. Among Grayscale’s funds, the asset manager has previously converted its Bitcoin and Ethereum trusts. As closed-end funds, the products traded at a discount or premium relative to the value of their underlying holdings, due to supply and demand imbalances that stemmed from the funds' structures.
The SEC signaled on Tuesday that it's receptive to funds that devote most of their funds toward established cryptocurrencies like Ethereum and Bitcoin, with others in the mix, but it has yet to greenlight ETF applications that focus solely on smaller altcoins.
Grayscale sued the SEC over repeated denials to convert its Grayscale fund into a full-fledged ETF in 2023. Its courtroom victory, in which an appellate court took issue with the regulator's logic for denials, contributed to the SEC's approval of spot Bitcoin ETFs last year.
Those BTC funds have debuted to dramatic success, generating nearly $50 billion in investments. Spot Ethereum funds have netted about $4 billion in assets.
Edited by James Rubin