The U.S. Securities and Exchange Commission (SEC)’s approval of spot Bitcoin Exchange Traded Funds for public trading in January 2024 was a major milestone for the crypto industry. Among the many positives of the development, one significant one was that it showed that some of the biggest names in traditional finance, like BlackRock, Fidelity, and Grayscale, believe in crypto as a legitimate investment. This journey started all the way back in 2013 when the Winklevoss twins made the first attempt at a Bitcoin ETF, so it’s been a long time coming.
Now, the conversation is expanding beyond Bitcoin. People are talking about creating spot ETFs for other major cryptocurrencies like XRP and Solana (SOL). If these get approved, it could take crypto even further into the mainstream.
But there’s a catch: as exciting as this is, it raises some big questions. Is the crypto industry ready for this level of adoption? Can it handle the new wave of interest and scrutiny without losing the core values that make it unique?
Rumoured Altcoins for ETFs
The buzz around potential altcoin-focused ETFs is growing. Grayscale, a leader in the crypto investment space, has already filed for a Bitcoin ETF and launched a trust for XRP, the native token of Ripple’s XRP Ledger. This XRP trust is anticipated to pave the way for a future XRP spot ETF, contingent on overcoming regulatory challenges. Such a move would be monumental, especially given that XRP’s legal status remains in flux after Ripple’s long-running lawsuit with the SEC.
Solana’s SOL is another altcoin gaining attention due to its robust performance and expanding developer ecosystem. ETF issuers such as Canary Capital, Bitwise, and Grayscale are reportedly considering Solana-focused ETFs. Additionally, there is speculation about ETFs that could track baskets of altcoins, such as the Hashdex Nasdaq Crypto Index, which would provide diversified exposure to multiple digital assets instead of focusing on a single coin.
While there is no official confirmation yet for many of these altcoin-focused ETFs, more proposals for altcoin ETFs are expected to surface. Bitcoin and Ethereum ETFs, particularly the spot Bitcoin ETFs, have already seen tremendous success (even though it is uneven), with billions in inflows.
This has spurred increased interest in expanding the range of ETFs to include other prominent altcoins.
RELATED: Where on Earth Can You Trade Spot Bitcoin ETFs Legally?
Assessing Crypto Market Readiness
The disparity between the success (or market pull) of Bitcoin and Ethereum ETFs highlights the challenges of introducing spot ETFs for other altcoins. While Bitcoin’s entrenched status as a store of value and its regulatory head start has given it a unique advantage, Ethereum’s complex ecosystem and narrower appeal have limited its traction. Extending ETFs to additional altcoins at this stage could oversaturate the market, amplify risks, and struggle to generate sufficient investor interest.
Currently, Bitcoin ETFs have surpassed a collective $120 billion in total assets under management, while Ethereum ETFs have surpassed about $13 billion. While Bitcoin’s price surged over 137.5% in 2024 following spot ETF approvals, Ethereum’s increase of around 40% remains modest and still below its 2021 all-time highs. The prevailing market narrative is that Ether ETFs have weaker demand and less straightforward investment benefits.
One could argue that the timing of approvals impacted their performance. Bitcoin ETFs, launched earlier, enjoyed the initial surge of investor enthusiasm and had time to build market trust. In contrast, Ethereum ETFs entered a more crowded market amid a waning appetite for risk and persistent crypto volatility.
However, Nate Geraci, president of The ETF Store and co-founder of The ETF Institute, has expressed doubts about the approval of spot crypto ETFs for altcoins such as Solana and XRP in the near future. Geraci believes that current market conditions and the regulatory environment make it unlikely that these products will be approved within the next one to two years. Several key factors must be addressed to evaluate the crypto market’s readiness for altcoin ETFs.
Liquidity is crucial in the stability of spot ETFs. Bitcoin, with its market cap exceeding $1.8 trillion, remains the most liquid cryptocurrency, making it a prime candidate for stable spot ETFs.
As of November 2024, Bitcoin’s 24-hour trading volume regularly surpasses $55 billion, which reflects its deep liquidity and the high level of trading activity around it. This liquidity means that Bitcoin can accommodate large trades without experiencing significant price fluctuations, providing the stability that is crucial for a spot ETF.
In comparison, SOL and XRP have much smaller market caps and lower liquidity, which could present challenges in supporting stable ETFs. Solana’s market cap is over $114.8 billion, with its 24-hour trading volume ranging from $10.1 billion, significantly smaller than Bitcoin’s. XRP, with a market cap of $65 billion, sees a 24-hour trading volume of $11.9 billion, still a fraction of Bitcoin’s.
These liquidity disparities raise concerns about whether these altcoins can support the stability required for ETFs. Moreover, Solana has faced price volatility due to regulatory uncertainties, particularly regarding the SEC’s stance on its status as a security.
Another problem is market volatility. Altcoins tend to be much more volatile than Bitcoin and Ethereum, meaning their prices can swing wildly in short periods. This can be a red flag for investors, especially institutional ones, who want more stability from ETFs. Since ETFs are usually designed to provide steadier returns, altcoins’ price fluctuations make it hard to offer a predictable investment product.
On the flipside, spot ETFs for altcoins like XRP and Solana could significantly expand investment opportunities, offering alternatives beyond Bitcoin and Ethereum. These ETFs would enable investors to gain exposure to digital assets without directly buying or storing cryptocurrencies. This setup not only simplifies access to the crypto market but also lends legitimacy to altcoins that have often been overshadowed by their larger counterparts.
Altcoin ETFs could also provide diversification, allowing investors to spread risk across multiple blockchain projects rather than concentrating on a single cryptocurrency. With growing ecosystems and increasing institutional involvement, altcoins like XRP and Solana are becoming more viable for mainstream adoption. Spot ETFs could attract new investors, particularly those hesitant to enter the volatile crypto space, and create additional opportunities in this expanding market.
Final Thoughts
The crypto industry is young, and while Bitcoin has reached a level of stability, the same can’t be said for other coins just yet. This means that it will take time to build the same kind of trust, security, and knowledge around altcoins that Bitcoin has achieved in the mainstream financial world.
There’s a lot of potential for altcoin ETFs to happen, but it’s going to take time. The market is still figuring out how to handle things like regulation (rules and laws for crypto) and the technical side of building products like ETFs for altcoins. Plus, there are still some risks with these coins, especially since the rules about how to treat them legally aren’t fully clear yet. So, while it’s possible for altcoins to get their own ETFs, it depends on how the market handles these challenges as it continues to grow and mature.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
If you would like to read more market analyses like this, visit DeFi Planet and follow us on Twitter, LinkedIn, Facebook, Instagram, and CoinMarketCap Community.
Take control of your crypto portfolio with MARKETS PRO, DeFi Planet’s suite of analytics tools.”
