The U.S. Securities and Exchange Commission (SEC) has hit pause on Grayscale Investments’ application to convert its Digital Large Cap Fund (GDLC) into a spot exchange-traded fund, only a day after greenlighting it.
The abrupt stay has thrown cold water on immediate trading plans and created some uncertainty about the anticipated expansion of crypto-based exchange-traded products.
First Approval, Then Sudden Stop
Acting under delegated authority, the SEC’s Division of Trading and Markets had granted accelerated approval on July 1 for NYSE Arca’s rule change, which was necessary to list and trade shares of the GDLC ETF.
This go-ahead was widely reported yesterday as a landmark move, converting Grayscale’s existing closed-end GDLC fund into one of the first regulated ETFs offering exposure to a diversified basket of major cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Solana (SOL), XRP, and Cardano (ADA).
Analysts like Nate Geraci had heralded it as a potential “test run” that could pave the way for future single-asset altcoin ETFs, and trading was expected to begin imminently, pending final operational steps.
However, ETF expert James Seyffart later flagged a letter from Deputy Secretary J. Matthew DeLesDernier, also dated July 1, that was attached to the approval. It explicitly stated:
“Pursuant to Rule 431 of the Commission’s Rules of Practice, the Commission will review the delegated action. In accordance with Rule 431(e), the July 1, 2025 order is stayed until the Commission orders otherwise.”
According to Seyffart, the stay prevents Grayscale from converting the fund “at this time,” despite the initial approval.
Analysts Weigh In
With the sudden delay leaving the community scratching its head, Seyffart offered a couple of theories that could explain the decision.
First, he speculated that internal coordination issues between different SEC departments may be at play. “Perhaps another division isn’t ready to let this convert just yet,” the analyst posted, suggesting there may be some structural issues with GDLC itself that could be under review.
In another post, he suggested that the financial watchdog may be holding off on any launches under the existing rule-changing system until it puts in place a more comprehensive regulatory structure for crypto ETFs.
“The SEC doesn’t want to let anything to launch under the 19b-4 process until they officially approve or come up with some framework for digital assets in the ETF wrapper,” wrote the expert.
This aligns with information shared on X by journalist Eleanor Terrett, who revealed that the agency was in the “early stages of creating a listing standard for token-based ETFs.”
While the regulator’s criteria are still unknown, Terrett speculated they could include market cap, trading volume, and liquidity. According to her, issuers will be allowed to skip the 19b-4 process if their tokens meet the soon-to-be-created threshold.
Seyffart’s Bloomberg colleague, Eric Balchunas, also concurred, saying:
“My guess tho: They want to issue the crypto ETP listing standards before any ’33 act spot ETFs hit market with these other coins.”
However, the industry watchers both agree that the delay is most likely temporary, with Seyffart writing, “It can’t convert YET, but it will.”
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