Grayscale pushes back on SEC’s decision to stay ETF conversion

Grayscale Asset Management has questioned the US Securities and Exchange Commission (SEC) decision to issue a stay on the application to convert the Digital Large Cap Fund (DLCF) into an exchange-traded fund (ETF).

In a July 8 letter, Grayscale’s legal team argued that the SEC exceeded its authority, as the application had already been approved by the SEC staff prior to the stay.

Earlier in the month, the SEC froze its decision on Grayscale’s application, just a day after staff had approved it. Grayscale’s Digital Large Cap Fund (GDLC), which holds assets such as Bitcoin, Ethereum, Solana, XRP, and Cardano, is reported to manage approximately $775 million in assets.

Grayscale challenges SEC

Grayscale contends that the SEC’s imposition of the stay violates the 240-day approval process required by US law.

According to the firm, the SEC had until the 240th day after the application was filed to approve or reject the proposal.

Since the deadline passed without a decision, Grayscale asserts that the application should have been automatically approved.

It stated:

“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.”

The asset management firm further emphasized that if the application were for a public company, the SEC would be bound to follow the timeline, and failure to do so would result in automatic approval.

Grayscale also noted that the SEC’s delays are beginning to harm both the firm and its investors. Considering this, the firm pointed out it might explore filing petitions to lift the stay and launch the ETF while the review continues.

Meanwhile, legal expert Scott Johnson pointed out that Grayscale’s letter indicates frustration with the SEC’s prolonged review rather than a desire for litigation.

He explained that Grayscale is eager to launch its product as soon as possible, especially with competitors like Bitwise’s BITW gaining ground.

He stated:

“The only one that makes sense. Grayscale gave it a few days, and now they’re annoyed its taking the commission too long to review/approve. BITW nipping at the heels and they want to move.”

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