tl;dr
Grayscale Asset Management challenged the SEC's decision to stay its application to convert the Digital Large Cap Fund (DLCF) into an ETF, arguing the SEC exceeded its authority since staff had already approved the application. The SEC froze its decision after staff approval, despite a legally manda...
Grayscale Asset Management has publicly challenged the US Securities and Exchange Commission's (SEC) decision to issue a stay on its application to convert the Digital Large Cap Fund (DLCF) into an exchange-traded fund (ETF). In a letter dated July 8, Grayscale’s legal team contended that the SEC exceeded its regulatory authority since the application had already been approved by SEC staff prior to the stay being imposed.
Earlier in the month, following staff approval, the SEC abruptly froze its decision on Grayscale’s application. The Digital Large Cap Fund (GDLC), which includes assets such as Bitcoin, Ethereum, Solana, XRP, and Cardano, manages approximately $775 million in assets. Grayscale argues that the SEC’s imposition of the stay violates a legally mandated 240-day timeline for approval processes in the US.
According to Grayscale, the SEC had until the 240th day after the application submission to approve or reject the proposal. Since this deadline passed without a final decision, the firm asserts the application should have been automatically approved under existing law. Their letter emphasized, “The 45/90/180/240-day timetable for approval or disapproval is set in stone, and the statute provides no authority to the Commission to extend it, by rule or otherwise.” Grayscale further pointed out that if this were an application for a public company, the SEC would be compelled to abide by the timeline, with failure resulting in automatic approval.
Grayscale also highlighted concerns that the SEC’s delays are beginning to negatively impact both the firm and its investors. In response to this, the company indicated that it might consider legal petitions to lift the stay and proceed with launching the ETF while the regulatory review continues.
Legal expert Scott Johnson noted that Grayscale’s letter signals frustration with the SEC’s prolonged review process rather than an intention to pursue aggressive litigation. He explained that Grayscale is keen to launch its ETF product promptly, especially as competitors like Bitwise’s BITW are gaining market traction.