SEC Opens Floodgates as First Multi-Token Crypto Fund Wins Approval

SEC Opens Floodgates as First Multi-Token Crypto Fund Wins Approval

Grayscale's diversified digital asset fund marks watershed moment as regulators streamline path for dozens of new products

The Securities and Exchange Commission delivered a double breakthrough for cryptocurrency investing on September 17, simultaneously approving the first multi-token exchange-traded product in U.S. history while establishing streamlined rules that could unleash a wave of digital asset funds.

Grayscale's Digital Large Cap Fund, offering exposure to five major cryptocurrencies including Bitcoin, Ethereum, XRP, Solana, and Cardano, received regulatory blessing to begin trading as an exchange-traded product. The approval came alongside the SEC's adoption of generic listing standards for spot commodity ETPs, fundamentally altering how crypto products reach American investors.

"This approval helps to maximize investor choice and foster innovation by streamlining the listing process and reducing barriers to access digital asset products within America's trusted capital markets," SEC Chair Paul Atkins said in a statement that signals a dramatic shift from the agency's historically cautious approach.

The Architecture Behind a Regulatory Revolution

The SEC's decision represents more than a single product approval—it establishes a cookbook approach that exchanges can follow to list qualifying crypto products without individual regulatory review. Under the new framework, underlying assets must meet specific criteria: trading on surveillance-monitored markets, having established futures contracts for at least six months, or being components of already-approved ETFs with substantial exposure thresholds.

This procedural transformation flips the regulatory default from "no unless" to "yes if you meet the requirements," according to market structure analysts familiar with the decision. The change compresses typical approval timelines from approximately 240 days to roughly 75 days, removing significant barriers that have constrained crypto product innovation.

Inside Grayscale's Diversified Bet

The Digital Large Cap Fund tracks the CoinDesk 5 index through market-cap weighting, with Bitcoin commanding approximately 72% of the basket, Ethereum holding 17%, and the remaining three assets—XRP, Solana, and Cardano—comprising the balance. The fund employs in-kind creation and redemption mechanisms, with authorized participants delivering actual cryptocurrency baskets in 10,000-share blocks rather than cash equivalents.

Coinbase Custody Trust serves as the qualified custodian, handling storage for all five digital assets. The arrangement creates operational efficiency but concentrates custody risk within a single provider, according to institutional due diligence specialists reviewing the structure.

The fund's current expense ratio stands at 2.50%, reflecting its origins as an over-the-counter product. Industry observers expect significant fee compression as competitive products enter the market, following patterns established by Bitcoin and Ethereum ETFs that saw management fees fall below 0.25% through competitive pressure.

Market Infrastructure Reaches Institutional Grade

Several factors converged to enable the regulatory breakthrough. Cryptocurrency market infrastructure has matured substantially, with robust price benchmarks, surveillance agreements between exchanges and regulators, qualified custody solutions, and standardized creation-redemption mechanisms now operating at institutional scale.

The SEC's approach also reflects years of legal pressure and precedent-setting victories by Grayscale and other applicants who successfully challenged inconsistent regulatory treatment. The Commission faced growing difficulty justifying case-by-case reviews when surveillance, custody, and pricing mechanisms had proven adequate for Bitcoin and Ethereum products.

Political and policy shifts under the current administration accelerated the timeline, with regulators adopting a more permissive stance toward digital asset innovation while maintaining investor protection frameworks.

Liquidity Dynamics and Operational Realities

The multi-token structure introduces complexity absent from single-asset products. During market stress, the least liquid constituent asset can dictate creation-redemption costs for the entire fund, potentially widening bid-ask spreads and tracking error. Market makers familiar with the mechanics note that successful arbitrage requires deep, orderly markets across all five components simultaneously.

Professional traders are already mapping reconstitution dates for the CoinDesk 5 index, anticipating measurable flows around quarterly rebalancing as assets move in and out of the basket based on market capitalization and liquidity screens. Tokens approaching inclusion or exclusion thresholds may experience significant price movements as institutional flows follow index changes.

The Coming Product Wave

Regulatory specialists expect the generic standards to trigger diverse product launches across single-asset funds, thematic baskets, and factor-based strategies. Solana appears positioned for standalone ETF approval given its established futures markets, while XRP faces a timeline constraint—CME futures launched in May 2025, requiring six months of trading history before qualifying under generic standards.

Asset managers are likely developing products targeting specific crypto sectors: layer-one blockchain platforms excluding Bitcoin and Ethereum, yield-generating tokens, and momentum-based strategies. The standardized approval pathway transforms crypto ETF development from a regulatory lobbying exercise into an operational and distribution competition.

Fee compression appears inevitable as competitive products emerge. The Bitcoin and Ethereum ETF launches demonstrated how expense ratios quickly fall when multiple issuers compete for flows, with successful funds charging 0.20% to 0.35% compared to legacy products that charged over 2%.

Investment Considerations and Market Impact

For institutional allocators, the Digital Large Cap Fund offers simplified exposure to crypto beta through traditional brokerage accounts, eliminating the operational complexity of managing multiple exchange relationships and custody arrangements. However, the Bitcoin and Ethereum concentration means investors seeking meaningful altcoin exposure may find targeted single-asset products more effective during periods when smaller tokens outperform market leaders.

Portfolio construction specialists recommend treating multi-token crypto funds as single risk exposures for drawdown calculations, given the high correlation between digital assets during market stress. The diversified structure provides limited downside protection while potentially underperforming during momentum-driven rallies in individual tokens.

Options markets for crypto ETFs could develop within 12 to 18 months, enabling covered call strategies and structured products that appeal to wealth management platforms. Such developments would mirror the evolution of traditional commodity and equity ETF ecosystems, where derivatives create additional revenue streams for issuers and hedging tools for investors.

Forward-Looking Investment Framework

Market analysts suggest several investment themes emerging from the regulatory shift. Infrastructure providers including exchanges, custody firms, and index calculation services may benefit from increased product launches and trading volumes. Coinbase, serving as custodian for multiple products, could see meaningful revenue growth from custody fees and ancillary services.

The generic standards create a pathway for assets with sufficient market infrastructure to access institutional capital pools. Tokens meeting liquidity, surveillance, and custody requirements may experience sustained flows as model portfolios incorporate crypto allocations through ETF wrappers rather than direct token purchases.

However, assets lacking mature market infrastructure remain excluded from the ETF pathway. The standards maintain requirements for qualified custody, surveillance-sharing agreements, and robust price discovery—barriers that many smaller tokens cannot meet despite their inclusion in crypto market indices.

Risk management remains paramount as the crypto ETF universe expands. While regulatory friction has decreased substantially, market volatility persists at levels far exceeding traditional asset classes. Investors should consider crypto allocations as high-risk, high-potential-return exposures suitable for portfolio sleeves rather than core holdings.

The SEC's breakthrough represents infrastructure maturation rather than fundamental risk reduction, positioning digital assets for broader institutional adoption while requiring continued vigilance around market dynamics that remain distinctly different from traditional securities markets.

Investment advisory: Past performance does not guarantee future results. Cryptocurrency investments carry substantial risk including potential total loss. Readers should consult qualified financial advisors before making investment decisions.