Grayscale Investments has received regulatory approval from the U.S. Securities and Exchange Commission (SEC) to convert its Digital Large-Cap Fund into a spot exchange-traded fund (ETF), the company announced Tuesday. The move marks another milestone in Grayscale’s ongoing effort to transition its crypto investment products into regulated, more accessible vehicles.
Fund Composition: BTC and ETH Dominate
The newly approved ETF will track the CoinDesk Large Cap Select Index, comprising the five largest cryptocurrencies by market capitalisation. Bitcoin (BTC) makes up the lion’s share of the fund at 80.2%, with Ethereum (ETH) accounting for 11.3%. The remaining allocations include XRP (4.8%), Solana (SOL) at 2.7%, and Cardano’s ADA (0.81%).
According to Grayscale’s filing, “The investment objective of the Fund is for the value of the shares to reflect the value of the digital assets held by the Fund… less the Fund’s expenses and other liabilities.”
Arbitrage Era Nears Its End
Grayscale’s crypto trusts were long favored by investors exploiting arbitrage opportunities created by the trusts’ premiums and discounts to net asset value (NAV). These inefficiencies were largely driven by restricted redemption mechanisms and mandatory lock-up periods.
However, the appeal of these trades has diminished as Grayscale continues converting its private trusts into ETFs, which allow in-kind redemptions and daily share creation, enhancing liquidity and reducing pricing gaps.
Legal Victory Paved the Way
This ETF conversion comes nearly two years after Grayscale took the SEC to court over its refusal to allow the company to convert its flagship Bitcoin Trust (GBTC) into an ETF. In a landmark decision in August 2023, a federal judge ruled that the SEC’s denial was “arbitrary and capricious,” siding with Grayscale and setting a legal precedent for crypto ETFs.
Following that victory, the GBTC was successfully converted into a spot Bitcoin ETF and now carries a 1.5% expense ratio—the highest among Bitcoin ETFs, but also the most lucrative in terms of assets under management.
