Grayscale Stymied on New Crypto ETF Even as SEC Backs Industry

Crypto was ready to have its moment in Washington. But the SEC’s hesitation to green-light a new crypto product from Grayscale Investments shows how regulatory hurdles can be hard to dislodge, even under the industry-friendly Trump administration.

The Securities and Exchange Commission this month put an indefinite pause on the anticipated market debut of Grayscale’s unique exchange-traded fund tracking multiple cryptocurrencies, right after the Wall Street regulator approved it.

The snag in Grayscale’s plan to convert its multitoken Digital Large Cap Fund into an ETF comes even as the SEC under Chairman Paul Atkins takes a new approach to crypto, hosting collaborative roundtables with industry players and killing Biden-era enforcement actions.

The indefinite stay, which the SEC notified Grayscale about in a July 1 letter, was followed this week by another hiccup for the high-flying industry, as House Republican leaders initially struggled to round up votes on legislation laying down rules of the road for crypto and stablecoin companies.

“In the past, people were willing to go along with the staff and the commission as it dragged out the proceedings for new crypto ETPs,” said Patrick Daugherty, a partner at Foley & Lardner LLP who leads the firm’s digital assets practice, referring to exchange-traded products tied to cryptocurrencies. “My view is that was the past and this is now, and I think it should change.”

An SEC spokesman declined to comment. Grayscale didn’t respond to a request for comment.

A statutorily mandated 240-day window for approving or denying Grayscale’s proposal means its ETF conversion should be considered valid by law, the company’s lawyers at Davis, Polk & Wardwell LLP argued in a July 8 letter to the SEC.

Allowing Grayscale’s multicrypto ETF to enter investor portfolios and retirement accounts would have widespread effects, as the fund would be the first of its kind to include Solana, Ripple, and Cardano tokens.

With more than $33 billion in assets under management, Grayscale is now among the top three managers of crypto ETF assets in the US alongside BlackRock Inc. and Fidelity Investments, according to Bloomberg data.

‘Uneasy About These Products’

Grayscale fought the SEC in court for years to get its spot Bitcoin ETF approved, urging the past administration under former Chair Gary Gensler to allow products tracking crypto spot prices just as it had permitted ETFs that relied on digital asset futures.

The investment company is hoping to avoid a similar fate with Atkins’ SEC.

The same day the SEC approved and immediately hit pause on Grayscale’s multitoken ETF proposal, the agency’s division of corporation finance released lengthy guidance for offerings and registration of crypto ETPs—an effort to provide clarity on how securities laws apply to digital assets.

“The crypto bar is big enough and proficient enough that there are many competent lawyers who will be able to apply that guidance speedily, without waiting for it to soak in, the way that might have been required years ago,” Daugherty said. “I wouldn’t think it’s a reason to stall progress on this fund.”

More clarity from the SEC could address concerns among new entrants hoping to tailor their products for swift approval. But any hesitation from the regulator typically informs how institutions and individuals feel about adopting a new investment vehicle on the market, according to Roxanna Islam, head of sector and industry research at financial consulting firm VettaFi.

“If the SEC is uneasy about these products, it sort of trickles down to the large wire houses, then down to the adviser, then the investor,” she said.

Waiting in the Wings

Grayscale’s chance of finalizing approval for a multitoken ETF stands to open the field to other firms with crypto asset products awaiting SEC approval, including one linked to President Donald Trump.

Trump Media & Technology Group Corp., which counts the president as its largest shareholder, on July 8 filed for approval of a “Truth Social Crypto Blue Chip” ETF with exposure to Bitcoin, Ether, Solana, XRP, and Cronos.

Approving an index with the specific digital asset basket that Grayscale and others are proposing would be significant, given Biden-era regulatory critiques of certain tokens such as SOL and XRP, according to Daugherty.

“It is a commission preference to approve several similar products all at once, so that no one sponsor can steal a march on the market and establish dominant market share ahead of others,” he said. “So that could be what’s going on here.”

Grayscale is facing a separate SEC review after it filed confidentially for a US initial public offering, submitting a draft registration this week on the heels of similar moves by Gemini and Circle Internet Group Inc.

Confidential IPO filings typically limit reputational risk for companies, allowing them to engage with the SEC and respond to feedback without public scrutiny.

In the meantime, it remains to be seen how long Grayscale will have to wait for the SEC’s go-ahead on its multitoken ETF.

“It seems like someone said, ‘wait a second, we need a moment to think about this before we actually approve it,’” Islam said.