Alts ETF Gold Rush Rise

Preface

In January 2024, the spot Bitcoin ETF will begin trading on Wall Street, and six months later, the spot Ethereum ETF will make its debut. Today, regulators are facing 72 cryptocurrency ETF applications, a number that continues to grow.

From Solana to Dogecoin, XRP, and even PENGU, asset management companies are competing to package various digital assets into regulated products. Analysts have raised the approval probability for most applications to 90% or higher, indicating that we are about to witness the largest expansion of crypto investment products in history.

The industry landscape has changed dramatically compared to 18 months ago. From struggling for recognition to now everyone wanting a piece of the pie.

The huge success of Bitcoin ETF

To understand the importance of alts ETF, one must first recognize that the success of the spot Bitcoin ETF has far exceeded expectations. In just one year, the Bitcoin ETF attracted $107 billion in funds, becoming the most successful ETF issuance in history. After 18 months, the asset size reached $133 billion.

A large asset management company's Bitcoin ETF holds 694,400 Bitcoins worth over $74 billion. All ETFs combined control 1.23 million Bitcoins, accounting for approximately 6.2% of the total circulating supply.

This success proves that the demand for gaining exposure to crypto assets through traditional investment tools is real and substantial. Institutions and retail investors are almost all lining up to participate.

The advantages of ETF

Although alts can be directly purchased on cryptocurrency exchanges, ETFs offer higher mainstream recognition. ETFs allow cryptocurrencies to exist on traditional stock exchanges in accordance with existing financial regulations.

For retail investors who are not familiar with how cryptocurrencies work, an ETF is an ideal choice. There is no need to set up a wallet, protect private keys, or deal with the technical details of blockchain. The custody and security of the ETF are managed on behalf of the investors, providing high liquidity assets that trade on mainstream traditional exchanges.

altcoin ETF application boom

Multiple major institutions have submitted Solana ETF applications, with a high approval probability of 90%. The ETFs for Ripple, Cardano, Litecoin, and Avalanche are also under review. Even meme coins like Dogecoin and PENGU have ETF applications.

This wave is the result of multiple converging factors. The government's shift in attitude towards cryptocurrencies, improvements in the regulatory environment, and institutional recognition of crypto assets have all driven this trend.

Economic Reality Test

Although the Bitcoin ETF has demonstrated significant institutional demand, early analysis suggests that the acceptance of alts ETFs may vary greatly. The total inflow for alts ETFs is expected to be far lower than the achievements of the Bitcoin ETF.

The performance of the Ethereum ETF further highlights this gap. Despite being the second-largest cryptocurrency, its ETF has only attracted about $4 billion in net inflows over 231 trading days, which is only 3% of what the Bitcoin ETF has achieved.

Staking brings new opportunities

Unlike Bitcoin ETFs, altcoin ETFs can generate additional income through staking. Regulators approve ETFs to stake their held assets and distribute the earnings to investors, creating a new revenue model for ETF issuers and providing investors with a new value proposition.

However, managing ETFs for staked crypto assets faces multiple challenges, including balancing liquidity demands and managing confiscation risks. This requires complex operational management and technical expertise.

fee compression trend

A large number of applications almost inevitably leads to fee compression. When numerous products compete for limited institutional funds, pricing becomes a major differentiating factor. Some issuers may even use staking rewards to subsidize management fees, launching zero-fee or negative-fee products to attract assets.

This fee compression benefits investors, but it also puts pressure on the profitability of issuers. The market is expected to undergo consolidation, with only the largest and most efficient operators able to survive.

Conclusion

The rise of alts ETF is changing people's perceptions of crypto investment. Different cryptocurrencies are seen as investment choices with varying uses and risk characteristics. This reflects the mainstreaming process of the cryptocurrency industry, but also raises discussions about real value creation.

The market will ultimately determine which products can succeed and which concepts can exist in the long term. Regardless, this trend marks that cryptocurrency investment is entering a new stage of development.