SEC Pauses Grayscale ETF Conversion After Initial Approval – Regulatory Concerns Arise

The U.S. Securities and Exchange Commission (SEC) has abruptly halted the conversion of Grayscale's Digital Large Cap Fund into an exchange-traded fund (ETF), just one day after granting preliminary approval. The SEC's Division of Trading and Markets initially approved NYSE Arca's proposal to list the fund under an amended rule on July 1, with an accelerated approval process indicating confidence in the product's market readiness.

However, within 24 hours, the Commission invoked Rule 431 of its Practice Rules to review the decision, effectively putting the approval on hold. This unexpected reversal comes as a surprise following what many had viewed as a landmark moment for multi-asset cryptocurrency ETFs in the U.S. market.

The Grayscale fund, launched in 2018, holds a diversified portfolio of major cryptocurrencies, with Bitcoin (BTC) and Ethereum (ETH) comprising over 91% of its holdings. The remaining assets include altcoins such as XRP, Solana (SOL), and Cardano (ADA), each subject to varying degrees of regulatory uncertainty.

Industry analysts speculate that the SEC's intervention may reflect concerns about the fund's inclusion of assets with unclear regulatory status. Bloomberg ETF analyst Eric Balchunas suggested on social media that the SEC might be waiting to establish clearer crypto ETP listing standards before allowing such products to market.

This development occurs despite recent political momentum favoring digital asset firms, demonstrating that regulatory scrutiny remains a significant factor in product approvals. Grayscale and NYSE Arca now face an indefinite delay, as the SEC has provided no timeline for completing its review or guidance on next steps.