Executive Summary / Key Takeaways

• Grayscale Digital Large Cap Fund (GDLC) offers investors exposure to a diversified basket of large-cap digital assets, currently including Bitcoin, Ether, XRP, Solana (SOL), and Cardano (ADA), determined by the CoinDesk Large Cap Select Index (DLCS) methodology.
• The Fund's performance is directly tied to the volatile prices of its underlying digital assets, experiencing a net decrease in net assets of $135.113 million in the three months ended March 31, 2025, primarily due to price depreciation, offset by a $76.131 million increase over the nine months ended March 31, 2025, driven by broader pricing trends.
• GDLC operates in a highly competitive landscape, facing larger, more financially efficient rivals like BlackRock (BLK)'s IBIT and Fidelity's FBTC, which benefit from greater scale and lower operating costs, while GDLC differentiates through its diversified, rules-based portfolio construction and crypto-native focus.
• Significant regulatory uncertainty, particularly regarding whether certain Fund Components like SOL, XRP, and ADA may be deemed securities, poses a material risk, potentially impacting asset value, liquidity, and the Fund's operational requirements, including the possibility of termination if unable to comply with new regulations.
• Key future developments to watch include the outcome of the NYSE Arca listing application and the potential establishment of a redemption program, both of which are subject to regulatory approval and could significantly alter the Fund's structure and accessibility for investors.

The Landscape and Grayscale's Position

Grayscale Digital Large Cap Fund LLC (GDLC) was established in 2018 to provide investors with a structured way to gain exposure to the burgeoning digital asset market. Operating as a passive investment vehicle, GDLC holds a portfolio of what it deems to be the most significant digital assets by market capitalization. Its core value proposition lies in simplifying access to this volatile asset class, allowing investors to hold shares in a fund rather than directly managing the complexities of digital asset custody and security.

The digital asset investment landscape has evolved dramatically since GDLC's inception, becoming increasingly competitive with the entry of large, traditional financial players offering competing products, notably spot Bitcoin ETFs from firms like BlackRock and Fidelity's FBTC. While these newer entrants often focus solely on Bitcoin and benefit from immense scale and integration with existing financial infrastructure, GDLC has strategically positioned itself by offering diversified exposure to a basket of large-cap digital assets. This diversification is a key differentiator, aiming to capture potential growth across multiple leading protocols rather than being solely reliant on Bitcoin's performance.

GDLC's strategic approach to portfolio construction underwent a significant shift effective July 1, 2022, moving away from a discretionary methodology to one based on the CoinDesk Large Cap Select Index (DLCS). This change underscores a commitment to a rules-based, transparent approach for determining Fund Components and their weightings.

The DLCS Methodology: GDLC's Technological Core

At the heart of GDLC's investment strategy is its adoption of the CoinDesk Large Cap Select Index (DLCS) methodology. While not a "technology" in the traditional sense of hardware or software, this rules-based framework serves as the Fund's operational engine for portfolio composition and rebalancing, functioning as a key strategic and operational differentiator.

The DLCS methodology, designed and managed by CoinDesk Indices, Inc., aims to:

• Provide broad large-cap coverage of the digital asset market.
• Minimize transaction costs through low portfolio turnover.
• Create a portfolio that can be replicated through direct purchases in the digital asset markets.

On a quarterly basis, the Index Provider reviews the DLCS, and the Manager subsequently rebalances the Fund's portfolio to align with the index composition and weightings, subject to limited discretion to exclude assets in certain circumstances. For example, the January 2025 rebalancing saw Cardano (ADA) added back to the Fund while Avalanche (AVAX) was removed, requiring the sale of AVAX and certain existing assets to purchase ADA and adjust weightings.

This systematic approach provides investors with predictable exposure to the top digital assets as defined by the index, reducing the need for active management decisions regarding asset selection and weighting. The stated goal of minimizing turnover aims to keep transaction costs lower compared to more actively managed strategies, although the Fund's expenses are primarily the Manager's Fee, paid in digital assets. The replicability aspect is intended to ensure the Fund's holdings closely track the underlying index.

For investors, the "so what" of this methodology is twofold: it offers a defined, transparent strategy for diversified large-cap crypto exposure, and it provides potential benefits from the stated goals of low turnover and replicability. However, the effectiveness of this methodology in achieving superior risk-adjusted returns or cost savings compared to competitors is subject to market dynamics and the specific performance of the selected assets.

Financial Performance and Operational Realities

GDLC's financial performance is intrinsically linked to the volatile price movements of its underlying digital asset holdings. As a passive vehicle, its "revenue" is effectively the appreciation of its assets, offset by expenses, primarily the Manager's Fee. The Fund does not generate traditional operating revenue from services or sales.

For the three months ended March 31, 2025, the Fund reported a net decrease in net assets resulting from operations of $135.113 million. This contrasts sharply with the $232.476 million net increase in net assets during the same period in the prior year (ended March 31, 2024). The primary driver for the recent decrease was the price depreciation of the Fund Components during the quarter. Over the nine months ended March 31, 2025, the picture was more positive, with a net increase in net assets of $76.131 million, reflecting broader positive pricing trends in digital assets over that longer period, albeit significantly less than the $333.630 million increase seen in the nine months ended March 31, 2024.

The Fund's main expense is the Manager's Fee, calculated at an annual rate of 2.50% of the Fund's net asset value. This fee is paid in the Fund Components themselves, proportional to their weightings. For the three months ended March 31, 2025, the Manager's Fee amounted to $4.414 million, an increase from $2.882 million in the prior-year period, reflecting the higher average value of the Fund's assets. Over the nine months, the fee was $11.687 million in 2025 compared to $6.446 million in 2024, showing an 81.31% increase, again tied directly to the appreciation of the underlying assets on which the fee is based.

Operationally, the Fund maintains no cash balance, a characteristic of its passive, in-kind transaction model (for creations and fee payments). This means the Fund generates no cash flow from operations in the traditional sense. While the Manager can sell assets to cover extraordinary expenses, this is not a regular occurrence, and the Manager endeavors to minimize cash holdings. This operational structure simplifies liquidity management but means the Fund cannot rely on cash reserves for unexpected liabilities.

The Fund's Shares trade on the OTCQX Best Market under the ticker GDLC. Historically, these shares have traded at both significant premiums and discounts to the Fund's Net Asset Value (NAV), a common characteristic of closed-end fund structures without a redemption mechanism. As of March 31, 2025, the Principal Market NAV per Share was $38.01, compared to $33.21 at June 30, 2024.

Competitive Dynamics and Positioning

GDLC operates within a fiercely competitive segment of the asset management industry, vying for investor capital against a growing number of digital asset investment products. Its most direct competitors are other funds and ETFs providing exposure to large-cap cryptocurrencies.

Compared to major players like BlackRock's IBIT and Fidelity's FBTC, GDLC's key competitive advantage lies in its diversified portfolio based on the DLCS methodology, offering exposure to multiple leading digital assets (Bitcoin, Ether, XRP, SOL, ADA) rather than just Bitcoin. This diversification strategy aims to capture a broader spectrum of growth within the large-cap crypto market. Furthermore, as part of the Grayscale family, GDLC benefits from a brand established early in the digital asset investment space, positioning it as a crypto-native option.

However, GDLC faces significant competitive disadvantages, particularly concerning scale and financial efficiency. Larger competitors like IBIT and FBTC, backed by massive asset management firms, benefit from economies of scale that can result in lower operating costs per unit of assets under management. While precise, directly comparable operating cost ratios for all niche competitors are not publicly detailed, the competitive analysis suggests that GDLC's operating costs may be higher than these larger rivals. This can translate into lower profitability margins and potentially lower returns on invested capital compared to the most efficient players in the market. For instance, the analysis indicates IBIT and FBTC may have higher net margins and ROIC figures than GDLC's estimated ranges.

The lack of a redemption program is another competitive vulnerability. Unlike spot Bitcoin ETFs which allow for daily creation and redemption of shares, helping to keep the market price closely aligned with the underlying NAV, GDLC's structure means its share price can deviate significantly from its NAV, trading at discounts or premiums. This structural difference is a key point of comparison for investors evaluating different digital asset investment vehicles.

The ongoing legal proceedings involving Grayscale, such as the lawsuit filed by Osprey Funds, LLC, while not directly against GDLC, highlight the intense competitive pressures and legal risks within the industry. While Grayscale successfully obtained summary judgment in the Osprey case regarding the applicability of CUTPA to securities transactions, the appeal process indicates the persistence of competitive challenges in the legal arena.

Risks and Challenges

Investing in GDLC is subject to a multitude of risks inherent in the digital asset market and the Fund's specific structure. The most prominent risk is the extreme volatility and limited history of digital asset prices. Fluctuations in the value of Bitcoin, Ether, XRP, SOL, and ADA can materially and adversely affect the Fund's net asset value and the price of its Shares.

Regulatory uncertainty remains a paramount concern. The evolving stance of regulatory bodies, particularly the SEC, on classifying digital assets as securities poses a significant threat. The fact that SOL, XRP, and ADA, which constitute approximately 9.91% of the Fund's NAV as of March 31, 2025, have been involved in SEC actions or litigation where their security status has been questioned, is a material risk. As the Fund states, "any determination that a Fund Component is a security under federal or state securities laws may adversely affect the value of such Fund Component and, as a result, an investment in the Shares." Such a determination could also subject the Fund and its Manager to additional regulatory requirements, potentially including registration under the Investment Company Act of 1940, which, if the Manager chooses not to comply, could lead to the Fund's termination at a potentially disadvantageous time for shareholders.

Operational risks include the reliance on third-party service providers like the Custodian (Coinbase Custody Trust Company, LLC (COIN)) for safeguarding assets and managing private keys. The risk of theft, loss, or compromise of private keys could result in the irretrievable loss of Fund Components. The irrevocability of digital asset transactions also means incorrectly executed transfers are difficult or impossible to reverse.

Furthermore, the lack of a redemption program means investors seeking liquidity must sell their shares on the secondary market, potentially at a significant discount to NAV. Establishing a redemption program is contingent on obtaining necessary regulatory approvals from the SEC and registering as a mutual fund in the Cayman Islands, processes with uncertain timelines and outcomes.

Outlook and Future Considerations

The outlook for GDLC is closely tied to the trajectory of the digital asset market and key structural developments for the Fund. Continued appreciation in the value of Bitcoin and other large-cap digital assets held by the Fund would directly benefit its net asset value and potentially its share price. The DLCS methodology provides a clear framework for participating in the performance of the selected large-cap assets, with quarterly rebalancing ensuring the portfolio remains aligned with the index.

Strategically, the most significant potential catalysts for GDLC are the pending NYSE Arca listing application and the possibility of commencing a redemption program. A listing on a major exchange like NYSE Arca could increase accessibility and liquidity for investors. More importantly, the ability to redeem shares directly with the Fund, if approved, would likely help narrow the historical premium/discount volatility of the share price relative to NAV, potentially bringing it more in line with the performance of the underlying assets, similar to how spot Bitcoin ETFs currently operate. However, the timing and approval of these initiatives remain uncertain, as highlighted by the Fund's disclosure that the NYSE Arca application had not been approved as of the May 2, 2025 filing date.

The Manager's internal reorganization, effective January 1, 2025, consolidating management under Grayscale Investments Sponsors, LLC, is not expected to have a material impact on the Fund's operations. This appears to be an internal corporate restructuring rather than a change in the Fund's core strategy or management approach.

Investors should monitor regulatory developments closely, particularly concerning the classification of digital assets and potential new requirements for funds holding them. The outcome of the appeal in the Osprey lawsuit, while not directly involving GDLC, could also provide insights into the legal landscape for digital asset investment products and marketing practices.

Conclusion

Grayscale Digital Large Cap Fund offers investors a distinct avenue for gaining exposure to the leading digital assets through a diversified, rules-based portfolio guided by the DLCS methodology. Its history reflects an evolution towards a more structured approach to asset selection. While its passive nature simplifies operations and its diversification provides a different risk profile than single-asset funds, GDLC faces considerable challenges from market volatility, regulatory uncertainty, and competition from larger, more financially efficient players.

The Fund's performance will continue to be primarily dictated by the price movements of Bitcoin, Ether, XRP, SOL, and ADA. The potential for a NYSE Arca listing and the establishment of a redemption program represent significant opportunities to improve the Fund's structure and investor experience, but these remain subject to regulatory hurdles. For investors considering GDLC, a thorough understanding of the inherent volatility of digital assets, the specific risks associated with regulatory classification, and the current structural limitations (like the absence of redemptions) is crucial. The investment thesis hinges on the belief in the long-term growth of the large-cap digital asset market and the value of accessing it through GDLC's specific diversified, rules-based framework, weighed against the competitive pressures and regulatory landscape.