Grayscale Digital Large Cap Fund (2024)

Each Product is intended to follow a four-stage life cycle — with the ultimate goal of uplisting the Product to an ETF*. As a Product progresses through this intended lifecycle, there is a correlated increase in investor access and transparency.

Stage 1: Private Placement

Grayscale Products first launch as privateplacements, allowing accredited investors to gain crypto exposure through a familiar investment vehiclestructure.

Shares purchased in the private placements are initially restricted for one year.

Stage 2: Public Quotation

Grayscale pioneered obtaining public quotations for unrestricted shares of our private placements. This provides liquidity to existing private placement investors by allowing them to continue to hold their shares in their brokerage account or sell them through their broker in the public market.

This also allows all investors —accredited or not — to access Grayscale products through certain brokerage or retirement accounts, regardless of investment size or holding period.

Due to the lack of an ongoing redemption program, publicly traded shares may trade premiums or discounts to the value of their underlying assets.

Stage 3: SEC Reporting

Grayscale Products are the first SEC-reporting companies in the industry. The requirements of being SEC-reporting exceed the standard of reporting already met by these Products as OTC Markets public quotations, including heightened levels of disclosure to offer even greater transparency for investors, and subjects the Products to additional regulatory oversight.

This also reduces the initial one year holding period of the private placement to six months.

Stage 4: ETF

While the SEC has not currently approved a spot crypto ETF, Grayscale believes its SEC-reporting Products present a strong case for uplisting when permitted by the U.S. regulatory environment.

In connection with ETF uplisting, products would have ongoing creation and redemptions, and the arbitrage mechanism inherent to ETFs would effectively eliminate premiums and discounts to the value of their underlying assets.

*We use the generic term “ETF” to refer to exchange-traded investment vehicles, including those that are required to register under the Investment Company Act of 1940, as amended (the “‘40 Act”), as well as other exchange-traded products, or “ETPs”, which are not subject to the registration requirements of the ‘40 Act.

*We use the generic term “ETF” to cover exchange-traded investment vehicles that are required to register under the Investment Company Act of 1940, as amended (the “‘40 Act”), also commonly referred to as “exchange-traded funds” or “ETFs”. The term “ETF” also encompasses “exchange-traded products” or “ETPs”, like GBTC would be, that are not subject to the registration requirements of the ‘40 Act. ETFs trade in line with NAV as a result of the simultaneous creation and redemption mechanism available.

What is a private placement?

Shares of Grayscale Products are offered to institutional and individual accredited investors* in private placement transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Rule 506(c) thereunder.

Each Product’s investment objective is for the value of its shares (based on digital assets per share) to reflect the price performance of such Product’s underlying digital asset(s), less fees and expenses.** Modeled after popular commodity investment products, each Product was created for investors seeking exposure to digital assets through a familiar investment vehicle.

*Grayscale’s private placements are only available to Accredited Investors as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended. Most individuals are not Accredited Investors. An individual must earn more than $200,000 a year (or $300,000 per year with a spouse or spousal equivalent), have a net worth over $1 million either alone or together with a spouse or spousal equivalent, excluding their primary residence, or hold in good standing their Series 7, Series 65, or Series 82 professional certifications. Entities must have $5 million in liquid assets or all beneficial owners must be Accredited Investors.

**Because each Product does not currently operate a redemption program, there can be no assurance that the value of such Product’s shares will reflect the value of the assets held by such Product, less such Product’s expenses and other liabilities, and the shares of such Product, if traded on any secondary market, may trade at a substantial premium over, or a substantial discount to, the value of the assets held by such Product, less such Product’s expenses and other liabilities, and such Product may be unable to meet its investment objective.

What is a public quotation?

Shares of certain Products are publicly quoted on OTC Markets. Shares that have become unrestricted in accordance with SEC Rule 15c2-11 may be bought and sold by retail investors throughout the day via their brokerage accounts.

Investors of Grayscale’s public quotation Products receive annual and quarterly reports and financial statements pursuant to OTC Markets’ Alternative Reporting Standards (ARS).

What is an SEC Reporting Company?

An SEC reporting company is an issuer of securities that is subject to the periodic and current reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act).

The Exchange Act contains ongoing disclosure requirements designed to keep investors informed on a current basis of information concerning material changes in the financial condition or operations of the issuer. The requirements include an obligation to file annual reports and financial statements on Form 10-K, quarterly reports and financial statements on Form 10-Q, and current reports on Form 8-K with the SEC.

For more information, please refer to the SEC public filing documents.

What is an exchange-traded fund (ETF)?

ETFs are a basket of assets which can track a particular index, sector, commodity, or other underlying asset, and its shares can be purchased or sold on a national stock exchange. ETFs are able to track the price of their underlying assets because of an arbitrage mechanism which allows market participants to create shares when there is a premium and redeem shares when there is a discount, thus allowing shares of the fund to trade closely in line with their net asset value.

Per Grayscale’s four-stage Product life cycle, Products are designed to be uplisted to ETFs when permitted by the U.S. regulatory environment. To date, none of Grayscale’s Products have uplisted into ETFs.