Grayscale ETF Conversion Delayed

In a surprising turn of events, the SEC has issued a stay order on Grayscale's application to convert its Digital Large Cap Fund into an exchange-traded fund (ETF). This action comes just one day after the SEC's initial approval order, leaving many questioning the reasons behind this sudden reversal.

SEC Halts Grayscale's Digital Large Cap Fund ETF Conversion

The SEC's letter to the NYSE, outlining the stay order, cites a need to review the delegated action. This effectively prevents the launch of what would have been the first spot ETF with exposure to ADA and XRP, alongside Bitcoin, Ethereum, and Solana. The stay order remains in effect until further notice from the Commission.

This development follows the SEC's initial approval for Grayscale's conversion and the NYSE's preparation to list and trade the ETF's shares. The unexpected stay order has injected uncertainty into the crypto market and highlights the regulatory complexities surrounding crypto ETFs.

Possible Reasons Behind the SEC's Stay Order

Several explanations have been offered for the SEC's decision. Bloomberg analyst James Seyffart suggests the following possibilities:

• Regulatory Framework: The SEC might be reluctant to approve any new crypto ETFs under the current 19b-4 process until a comprehensive framework for digital asset ETFs is established. The Commission is reportedly collaborating with exchanges to streamline the ETF listing process, aiming to reduce approval times to under 75 days.
• Last-Minute Review: Seyffart speculates the SEC may have granted the initial approval due to an approaching deadline, avoiding a formal denial but indicating they weren't prepared for an immediate launch.
• Internal Inconsistencies: Another potential reason points towards internal disagreements within the SEC. The 19b-4 approval originated from the Division of Trading and Markets, while other divisions might require further review before allowing conversion.

The SEC's actions underscore the ongoing regulatory scrutiny of the crypto market. The future of Grayscale's ETF application remains uncertain, pending further clarification from the Commission.

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