Grayscale Investments has come under the lens of the US Securities and Exchange Commission (SEC). The market watchdog has asked the digital asset manager to divulge details about three of its crypto trusts—Horizen (ZEN), Stellar (XLM), and ZCash (ZEC).
SEC has raised some viability-specific questions about the trusts, Grayscale said. Grayscale voluntarily revealed the developments in its regulatory filings on 16 August 2022, further to the disclosures made in June.
Why did the SEC raise questions?
SEC’s scrutiny of Grayscale comes at a time when there are growing uncertainties about how the regulators are looking at newer assets such as crypto. Policing crypto has been the SEC’s primary concern, and questioning Grayscale about the crypto trusts is the agency’s way to gain some much-needed clarity.
Significantly, the US regulator’s primary concern is regarding the viability of the trusts, especially at a time when Grayscale is faced with a decline in asset value in a bear market. Grayscale currently presents the mentioned trusts as investment instruments, not securities, which is likely to change after the SEC completes the inquiry. If the narrative changes, Grayscale might have to discontinue the mentioned crypto trusts.
Grayscale pitches these crypto trusts to users as means to invest in crypto alongside bonds and stocks. It is expected that the way these crypto trusts operate might change after the completion of the inquiry. SEC is expected to probe deeper into the nature of offerings and the “Securities Law Analysis” conducted by Grayscale.
In an August filing, Grayscale said that the mentioned trusts “may be” securities based on the recently surfaced data. However, this is the first time Grayscale has come close to acknowledging these crypto trusts as securities.
Currently, crypto trusts involving ZEC, XLM, and ZEN add up to $40 million in asset value, a minuscule portion of $18.7 billion worth of assets from trusts and funds which Grayscale manages.
