Original Article Title: The Altcoin ETFs Gold Rush

Original Article Author: Thejaswini MA

Original Article Translation: AididiaoJP, Foresight News

Has this created real value, or has it merely dressed speculation in regulatory approval?

January 2024 feels like a lifetime ago. Despite only 18 months passing, it feels like a century has gone by. For cryptocurrency, this period has been nothing short of an epic journey. On January 11, 2024, the spot Bitcoin ETF landed on Wall Street. About six months later, on July 23, an Ethereum ETF also took the stage. Now, the desks of the U.S. Securities and Exchange Commission (SEC) are flooded with 72 cryptocurrency ETF applications, and the number is only increasing.

From Solana to Dogecoin, from XRP to Pudgy Penguins, asset management companies are packaging various digital assets into compliant financial products. Bloomberg analysts Eric Balchunas and James Seyffart have raised the approval probability of applications to "90% or more," indicating that we are about to witness the largest expansion of cryptocurrency investment products in history.

If 2024 was a year of survival and breakthrough, then 2025 is the time for fierce competition and reaping the rewards.

The $107 Billion Feast of the Bitcoin ETF

To understand the significance of altcoin ETFs, we first need to understand how the Bitcoin spot ETF has disrupted everyone's expectations and rewritten the rules of the asset management industry. Within a year, the Bitcoin ETF attracted $107 billion, becoming the most successful ETF debut in history, and today, 18 months later, its assets under management have reached $133 billion. BlackRock's IBIT alone holds 694,400 bitcoins worth over $74 billion. All Bitcoin ETFs collectively hold 1.23 million bitcoins, accounting for approximately 6.2% of the circulating supply.

As BlackRock's Bitcoin ETF rapidly surpassed $700 billion, it proved that the demand for obtaining crypto exposure through traditional investment vehicles is real, substantial, and far from saturated. Institutions, retail investors, everyone is lining up to get in.

This success has formed a virtuous cycle: ETF inflows lead to a decrease in exchange Bitcoin balances, institutional holdings accelerate, Bitcoin price stability increases, and the entire crypto market gains unprecedented compliance. Even in the face of market volatility, institutional funds continue to flow in. These are not day traders or retail speculators but rather retirement funds, family offices, and sovereign wealth funds that view Bitcoin as a legitimate asset class.

It is precisely this success that has led to approximately 72 altcoin ETF applications piling up at the SEC as of April.

The Value of ETFs

Since you can already buy altcoins directly on exchanges, what is the point of an ETF? This is precisely the market logic surrounding mainstream adoption. ETFs are a milestone for cryptocurrency.

They grant digital assets the ability to be legally traded on traditional securities exchanges, allowing investors to buy and sell crypto assets through regular brokerage accounts. For most ordinary investors not familiar with crypto technology, this is a godsend. There's no need to set up a wallet, safeguard private keys, or deal with the technical details of blockchain. Even if one overcomes the wallet barrier, risks like hacking, key loss, exchange rug pulls, etc., always loom large. ETFs address custody and security concerns for investors, offering highly liquid assets tradable on mainstream exchanges.

Altcoin Gold Rush

The application list reveals the upcoming diversity of compliant crypto assets. Heavyweights like VanEck, Grayscale, Bitwise, and Franklin Templeton have submitted Solana ETF applications, with a 90% approval probability. Nine institutions, including newcomer Invesco Galaxy (proposed ticker: QSOL), are vying for a piece of the SOL pie.

XRP follows closely behind, with multiple applications targeting this payment-focused token. Cardano, Litecoin, and Avalanche ETFs are also in the review process. Even meme coins are not immune. Mainstream issuers have submitted Dogecoin and PENGU ETF applications. "No one has even applied for a Fartcoin ETF yet," Bloomberg's Eric Balchunas quipped on X platform.

Why the concentrated surge at this particular point in time? This is the result of a resonance of multiple factors. The pro-crypto stance of the Trump administration signaled a regulatory shift, and the new SEC Chairman Paul Atkins abolished Gary Gensler's approach of "regulation through enforcement" and established a crypto working group to develop clear rules. Regulatory thawing reached its peak in the SEC's latest statement, declaring that "staking activities" do not constitute securities issuance, completely reversing the previous government's crackdown policy on staking service providers like Kraken and Coinbase.

Bitcoin and Altcoins have received institutional validation, coupled with the corporate crypto reserve trend and Bitwise's research showing that 56% of financial advisors are willing to allocate to crypto assets, driving the demand for diversified crypto exposure beyond Bitcoin and Ethereum.

Demand Test

While the Bitcoin ETF has proven institutional demand, early analysis indicates that Altcoin ETFs will face a completely different fate. Sygnum Bank's Research Director, Katalin Tischhauser, expects Altcoin ETFs to have total inflows of around "hundreds of millions to 1 billion USD," a fraction of Bitcoin's 107 billion USD scale. The most optimistic estimates also indicate that Altcoin ETFs' total size may not even reach 1% of Bitcoin's. Fundamentally, this difference is reasonable.

The comparison with Ethereum is even more stark. As the second-largest cryptocurrency, the Ethereum ETF attracted only about 4 billion USD in net inflows over 231 trading days, barely reaching 3% of Bitcoin's 133.3 billion USD scale. Despite a recent influx of 1 billion USD over 15 trading days, Ethereum's institutional appeal still lags behind Bitcoin, suggesting that Altcoin ETFs will face a more challenging battle for investor attention.

Bitcoin has won institutional favor due to its first-mover advantage, regulatory clarity, and the succinct narrative of being "digital gold." Now, 72 applications are competing in a market that may only accommodate a few winners.

Staking Rewriting the Rules of the Game

One key factor that may distinguish Altcoin ETFs from Bitcoin products is: generating yield through staking. The SEC's approval of staking opens up new possibilities for ETFs, where staked holdings can earn rewards distributed to investors. The current Ethereum staking annualized return is around 2.5-2.7%. After deducting ETF fees and operating costs, investors may achieve a net return of 1.9-2.2%, not particularly impressive by traditional fixed-income standards, but combined with potential price appreciation, it is quite attractive.

Solana staking also provides similar opportunities. This creates a new revenue model for ETF issuers and offers new value to investors. ETFs with staking capabilities are no longer just price exposure tools but have become income-generating assets.

Several Solana ETF applications explicitly include staking clauses, with issuers planning to stake 50-70% of holdings while maintaining a liquidity reserve. The Invesco Galaxy Solana ETF application specifically mentions using "trusted staking providers" to generate additional income.

However, staking also brings operational complexity. ETF managers managing staked crypto assets face multiple challenges: they must maintain a sufficient amount of non-staked assets to handle redemptions while maximizing the staking ratio to increase yield. They also need to address the "slashing" risk, where validators lose funds if they make mistakes or violate rules. Operating validator nodes requires professional technical expertise and reliable infrastructure. Therefore, successfully operating a staking asset crypto ETF is like walking a tightrope at a great height. While not impossible, it is extremely challenging.

Previously approved Bitcoin and Ethereum ETFs did not have this option as the SEC under Gary Gensler's leadership considered staking to be a violation of securities law, constituting an unregistered securities issuance.

Fee War

The approval of 72 applications is bound to trigger a fee war. When numerous products compete for limited institutional funds, pricing becomes a key differentiator. Traditional crypto ETF management fees range from 0.15% to 1.5%, but competition may drive them even lower. Some issuers may even subsidize management fees with staking rewards, launching zero-fee or negative-fee products to attract funds. Several Solana ETFs in the Canadian market have been introduced with a temporary zero management fee clause. This fee compression benefits investors but squeezes the profit margins of issuers. Only the largest and most efficient operators can survive. Mergers, exits, and transformations are expected to occur, and the market will eventually determine the winners.

Viewpoints

The altcoin ETF craze is reshaping crypto investment logic. The Bitcoin ETF has been a huge success. The Ethereum ETF provided a second option, but received a lukewarm response due to complexity and poor returns. Today, asset management companies are betting on different cryptocurrencies, each with its own strengths.

Solana emphasizes speed, XRP focuses on payment scenarios, Cardano promotes "academic rigor," and even Dogecoin tells a mainstream adoption story. This makes sense for building a portfolio. Cryptocurrency is no longer just an alternative asset class but has diversified into dozens of investment targets with various risk characteristics and use cases.

As the largest cryptocurrency by market capitalization, Bitcoin has become an extension of many stock market investors' traditional portfolios, providing risk diversification and serving as a hedge against market uncertainty. In contrast, Ethereum, although ranked second, has not achieved the same level of mainstream integration, as most retail and institutional investors have not made the Ethereum ETF a core holding.

Altcoin ETFs must provide differentiated value to avoid repeating the mistakes of Ethereum ETFs. But this also reflects the crypto industry drifting further from its original purpose. When meme coins apply for ETFs, when 72 products vie for attention, when fee compression resembles the commodity business, this industry has fully mainstreamed.

The question is: does this create real value, or is it simply putting a regulatory cloak on speculation? The answer may depend on perspective. Asset management companies see a new revenue stream in a crowded market, while investors gain easy access to crypto exposure through familiar products.

The market will ultimately provide the judgment.

Original Article Link

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia