Grayscale has received approval from the U.S. Securities and Exchange Commission (SEC) to convert its Digital Large-Cap Fund into an exchange-traded fund (ETF). This event is expected to change the dynamics of crypto investments.
SEC Approval and Fund Structure
According to the information, the fund consists of the five largest cryptocurrencies by market capitalization featured in the CoinDesk Five Index. Approximately 80.2% of the fund is made up of Bitcoin (BTC), 11.3% is Ether (ETH), 2.7% is Solana (SOL), 4.8% is XRP, and 0.81% is Cardano (ADA).
Arbitrage Opportunities and Market
Investors have leveraged arbitrage opportunities for their Grayscale crypto trusts, capitalizing on premiums or discounts to net asset value (NAV) to lock in profits. These opportunities were largely due to the lock-up period of assets and the lack of in-kind redemptions. However, as Grayscale began converting its trusts into ETFs, these opportunities have diminished.
Grayscale's Legal Battles
In June 2022, Grayscale petitioned the court for the right to convert its Bitcoin trust into an ETF after the SEC denied its application. Following a year-long legal battle, a U.S. judge ruled in August 2023 that the SEC was 'arbitrary and capricious' in its denial and granted Grayscale's petition.
The SEC’s approval of Grayscale's fund conversion to an ETF marks a significant step for the cryptocurrency industry, indicating growing market maturity and new opportunities for investors.
