Grayscale wants to convert its altcoin fund into an ETF

After converting its funds on Bitcoin and Ethereum into ETFs, Grayscale now wants to convert its altcoin fund into an ETF as well.

This is the Grayscale Digital Large Cap Fund (GDLC), which is currently not tradable on the stock exchange, but only OTC. 

The demand of Grayscale to convert its altcoin fund into an ETF

Yesterday Grayscale Investments submitted an application to the SEC to convert the GDLC fund into an ETF.

Just like for GBTC and ETHE, the conversion into an ETF would allow not only the exchange of the fund’s shares on the stock market, but also the liquidation of any excess assets. 

At this moment, GDLC shares are being traded OTC at a price of about $23, but the NAV per share is over $33. 

Il NAV è il valore di mercato degli asset sottostanti, ed è pari complessivamente a più di 524 milioni di dollari per quanto riguarda il fondo GDLC.

Therefore, with 524 million dollars of AUM (Asset Under Management), the market capitalization of the fund turns out to be only 367 million dollars, which is about 30% less. 

Grayscale: the probable liquidation of altcoins after the conversion to ETF

The reason why the stock price of the GDLC fund is lower than the market value of the NAV per share is due to the fact that for a similar fund it is difficult to liquidate the collateral. 

This was indeed true for GBTC and ETH before they were transformed into ETFs. 

This led, especially in the first weeks after the conversion into an ETF, to strong and rapid liquidations of a not insignificant part of the collateral. 

Regarding GBTC, all the BTC liquidated by Grayscale’s new ETF in January were reabsorbed by the other new spot Bitcoin ETFs, while this did not happen with ETHE. In fact, as of today, the overall market value of all spot Ethereum ETFs is still about half a billion dollars less than the AUM of ETHE before it was converted into an ETF. 

The discount on the NAV is indeed an indirect measure of how much excess collateral the fund holds, and this suggests that when GBTC becomes an ETF, it will be forced to liquidate more or less 30% of its assets. 

The cryptocurrencies of GBTC 

This fund has as collateral various cryptocurrencies. 

The main portion (76%) is in Bitcoin, with 18% in Ethereum.

Following are Solana at 4%, XRP at 1.8%, and Avalanche at 0.7%.

Therefore, the largest liquidations will occur in BTC, followed by those in ETH.

Since the request to the SEC was submitted yesterday, it will take several months before it can be approved, and therefore GBTC can effectively become an ETF and land on the stock exchange. This could happen in the spring of 2025. 

The thing will need to be taken into consideration, because both in the case of the conversion into an ETF of GBTC and with ETHE, their liquidations triggered a price drop, even though for Bitcoin in January it lasted only a few weeks, while for Ethereum starting from the end of July they went on for months.

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The success of crypto ETFs

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The conversion of Grayscale’s crypto funds into ETFs can certainly not be defined as a success. 

Instead, overall the launch on the US stock exchanges of ETFs on cryptocurrencies was actually a success, although much greater for Bitcoin, and decidedly lower for Ethereum.

This is most likely due to the fact that ETFs cater to traditional investors and speculators, who find it more difficult to understand the value of Ethereum. By now, however, even traditional investors no longer struggle to understand the value of Bitcoin. 

So on one hand, there was the remarkable overall success of Bitcoin ETFs, despite a significant drop in Grayscale’s ETF, while on the other hand, there was only average success for those on Ethereum. 

The reason why the other new ETFs have performed much better than those of Grayscale is mainly due to the fact that Grayscale’s crypto funds had very high fees, also because they were the only ones present in the US markets of that kind and of those sizes. 

The new ETFs, on the other hand, have much lower fees, and therefore many of those who had GBTC shares sold them to perhaps buy shares of other more convenient BTC ETFs.