Grayscale to launch first US XRP trust, paving way for potential ETF

Exclusive: Crypto asset manager Grayscale is taking the first step in launching an XRP exchange-traded fund, FOX Business has learned.

On Thursday morning, the company will announce the launch of the U.S.’s first XRP trust, a so-called "closed-end" fund that will offer accredited investors direct exposure to XRP. The crypto token is the native coin that powers the blockchain known as the XRP Ledger, which facilitates cross-border transactions of blockchain payments giant Ripple.

A trust and an ETF are two different investment products. An ETF must be approved by the Securities and Exchange Commission since it is marketed directly to retail investors, while a trust’s structure and sales pitch to so-called accredited investors gets a lighter regulatory touch. Even so, a trust can become an ETF with the right regulatory approvals; two of Grayscale’s single-asset investment trusts – bitcoin and ether – have evolved into ETFs this year.

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The company has published an intended four-phase product life cycle for its XRP trust, leaving open the possibility of an ETF at some point in the future.

Grayscale is credited with helping to bring the first crypto ETFs to Wall Street after it sued the SEC last year to allow it to convert its Grayscale Bitcoin trust into a "spot" ETF – an ETF that tracks the daily price of the world’s largest cryptocurrency. Grayscale won on appeal, resulting in a flood of Wall Street titans like BlackRock, Fidelity and Wisdom Tree launching their own bitcoin ETFs. It marked a watershed moment for the nascent industry when 11 bitcoin ETFs debuted on Wall Street in January.

Four months later, the SEC approved the launch of six ETFs that track the underlying price of the second-largest cryptocurrency, ethereum.

The self-proclaimed "XRP Army" – retail investors who own the XRP token – have been waiting for an asset manager like Grayscale or BlackRock to file an application for an XRP ETF following the launches of the bitcoin and ether products, as well as a handful of recent applications for a Solana ETF. Solana is the No. 5 crypto by market cap, while XRP clocks in at No. 7.

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Making matters more uncertain for the XRP crowd – and a potential spot XRP ETF – has been how Wall Street’s top cop, the SEC, views the regulatory status of the token. The SEC is embroiled in a long and contentious legal battle with Ripple, which it sued in 2020 for failing to register sales of XRP with the commission as a security. Last year, a Manhattan judge handed Ripple a partial victory when she ruled that Ripple’s XRP sales to institutional investors could be considered securities transactions, but not when sold to retail investors in the secondary market.

The ruling has sparked debates from other judges in courtrooms around the country, while Ripple has been ordered to pay a $125 million fine for those institutional sales. The SEC now has until the first week of October to file an appeal against the secondary market ruling, which it is widely expected to do.

In the meantime, Grayscale remains confident that XRP in and of itself has potential long-term value for investors.

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"We believe Grayscale XRP Trust provides investors with exposure to a blockchain solution that is potentially positioned to play a crucial role in optimizing legacy financial systems by streamlining cross-border payments," said Rayhaneh Sharif-Askary, Grayscale’s head of product and research.

XRP currently trades at $0.54, but hit an all-time high of $3.84 in 2018, before the SEC’s lawsuit against Ripple.