Grayscale Announces Launch of XRP Trust, Moving Towards Potential ETF
Crypto asset manager Grayscale has taken a significant step towards launching an XRP ETF, a long-awaited development in the industry.
This Thursday, the company announced the creation of the first US trust dedicated to XRP, a financial product that will allow accredited investors to have direct exposure to the cryptocurrency. XRP is the native token of the XRP Ledger blockchain that powers Ripple’s cross-border transactions, a major player in blockchain-based payments.
A Trust, not yet an ETF
It is important to distinguish between a trust and an ETF (exchange-traded fund). A trust is reserved for accredited investors and has lighter regulation compared to ETFs, which require SEC approval before being accessible to the general public. However, a trust can evolve into an ETF if regulators give their approval, as was the case this year for two of Grayscale’s products based on Bitcoin and Ethereum.
Grayscale has unveiled a four-phase strategy for its XRP trust, hinting at the possibility of transforming it into an ETF in the future. This progressive model follows a growing trend in the financial markets, where institutional investors and asset managers are exploring new ways to introduce digital assets into traditional financial products.
Regulatory Context and Competition
Grayscale is considered a pioneer in introducing crypto ETFs to Wall Street. After suing the SEC last year to convert its Bitcoin trust into a spot ETF (which tracks the daily price of Bitcoin), the company succeeded on appeal. This success encouraged giants like BlackRock, Fidelity, and Wisdom Tree to launch their own Bitcoin spot ETFs. In January, 11 Bitcoin ETFs were introduced on US exchanges, marking a turning point for the nascent cryptocurrency industry.
More recently, the SEC has given the green light to six Ethereum spot ETFs, based on the second-largest cryptocurrency by market capitalization. This momentum has heightened expectations for a possible XRP ETF, a product that the XRP investor community, known as the “XRP Army”, has long awaited.
The Dispute Between Ripple and the SEC
However, the regulatory situation surrounding XRP remains uncertain. The SEC has been engaged in a protracted legal battle against Ripple since 2020, accusing it of not registering XRP sales as securities transactions. While a Manhattan judge ruled in favor of Ripple regarding sales to individual investors, deeming them not securities, institutional sales were deemed as such. This partial decision led Ripple to pay a $125 million fine for institutional sales.
The ongoing dispute complicates the prospects of launching an XRP ETF. The SEC has until October to appeal the decision regarding secondary sales, which could further delay any attempts to gain approval for an XRP-based ETF.
Long-term Potential Despite Uncertainties
Despite these obstacles, Grayscale remains optimistic about the long-term potential of XRP. According to Rayhaneh Sharif-Askary, Head of Product and Research at Grayscale, the XRP trust could play a crucial role in optimizing traditional financial systems by facilitating cross-border payments. This vision aligns with a broader trend in decentralized finance, where blockchain solutions like the XRP Ledger are being explored to replace or enhance existing financial infrastructures.
Towards an XRP ETF?
Grayscale’s announcement of the launch of the first XRP trust is a crucial step, but it does not yet mark the creation of an ETF. With increased competition in the crypto ETF market and recent filings for Solana ETFs, investors are excited, resulting in an 8% increase in XRP price upon the announcement. However, as long as the legal battle between Ripple and the SEC persists, it is difficult to predict with certainty when an XRP ETF could be approved.
