The Gold Rush of Altcoin ETFs Rises, Market Landscape May Be Reshaped

Preface

Looking back at January 2024, it feels like another era. In just 18 months, the cryptocurrency market has undergone tremendous changes.

On January 11, 2024, the spot Bitcoin ETF made its debut on Wall Street. Six months later, on July 23, the spot Ethereum ETF also began trading. To date, the U.S. Securities and Exchange Commission (SEC) has received 72 applications for crypto ETFs, with the number continuing to increase.

From Solana to Dogecoin, XRP, and even PENGU, asset management firms are scrambling to package various digital assets into regulated products. Analysts expect that the approval probability for most applications is as high as 90%, indicating that crypto investment products are about to experience unprecedented expansion.

Compared to the difficult breakthroughs of 2024, the year 2025 can be described as a flourishing of diversity.

The huge success of Bitcoin ETF

To understand the importance of alts ETF, one must first understand the astonishing performance of spot Bitcoin ETF. They have completely rewritten the script of asset management.

In one year, 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 coins, worth over 74 billion USD. All ETFs combined control 1.23 million coins, accounting for about 6.2% of the total supply.

This success proves that the demand for gaining exposure to crypto assets through traditional investment tools is real and substantial. Institutional investors and retail investors are eagerly participating.

This success has created a virtuous cycle: ETFs absorb Bitcoin supply, exchange balances decrease, institutional holdings increase, Bitcoin prices become more stable, and the entire cryptocurrency market gains unprecedented recognition. Even during periods of market volatility, institutional funds continue to flow in. These investors view Bitcoin as a legitimate asset class rather than a short-term speculative tool.

It is this success that has given rise to the 72 altcoin ETF applications currently waiting for SEC approval.

The meaning of ETF

Although altcoins can be purchased directly on cryptocurrency exchanges, the significance of ETFs lies in providing mainstream recognition. The status of ETFs marks an important milestone in the legitimization of cryptocurrencies.

This legitimacy allows cryptocurrencies to be traded on traditional securities exchanges in accordance with existing financial regulations. Crypto ETFs enable investors to buy and sell digital assets like trading stocks through regular brokerage accounts.

For retail investors who are not familiar with how cryptocurrencies work, this is a boon. No need to set up wallets, protect private keys, or deal with the technical details of blockchain technology. Even if the wallet barrier is overcome, risks still exist—hacker attacks, lost private keys, and exchange crashes, among others. ETFs are managed and secured on behalf of investors, providing highly liquid assets that can be traded on mainstream exchanges.

altcoin ETF application boom

These applications reveal the future development prospects. Several major institutions have submitted Solana ETF applications, with an approval probability as high as 90%. Nine independent issuing institutions also hope to participate in the competition for SOL.

XRP's application follows closely, with multiple applications targeting this payment-focused cryptocurrency. The ETFs for Cardano, Litecoin, and Avalanche are also under review.

Even meme coins are no exception. The main issuing institutions have submitted ETF applications for Dogecoin and PENGU.

The occurrence of all this stems from the convergence of various forces. The new government's friendly attitude towards cryptocurrency marks a dramatic shift in regulatory stance, as the new SEC chair has abolished the previous administration's "regulation by enforcement" approach and established a crypto task force to formulate clear rules.

The SEC recently clarified that "protocol staking activities" do not constitute the issuance of securities, which stands in stark contrast to the previous government's aggressive crackdown on staking providers.

The recognition of Bitcoin and altcoins by institutions, the surge in corporate cryptocurrency reserves, and the increased willingness of financial advisors to allocate to crypto assets have collectively created an unprecedented demand for diversified crypto exposure.

Economic Reality

Despite the massive institutional demand proven by Bitcoin ETFs, early analysis indicates that the acceptance of alts ETFs will be markedly different.

A research director at a certain bank predicts that the total inflow of alts ETF will reach "hundreds of millions to 1 billion dollars"—far lower than Bitcoin's achievement of 107 billion dollars. Even with the most optimistic estimates, the total inflow of alts ETF is less than 1% of Bitcoin's achievement.

The performance of Ethereum further highlights this gap. Despite being the second largest cryptocurrency, its ETF has attracted only about $4 billion in net inflows over 231 trading days—just 3% of Bitcoin's achievement of $133.3 billion. Even with an additional $1 billion inflow over the last 15 trading days, Ethereum's institutional appeal is still far behind Bitcoin.

Bitcoin benefits from first-mover advantage, regulatory clarity, and an easily understandable "digital gold" narrative. Now, 72 applications are chasing a market that may only support a few winners.

Staking Changes the Game

One difference between alts ETF and Bitcoin ETF is: earnings obtained through staking. The SEC's approval of staking has opened the door for ETFs to stake their held assets and distribute earnings to investors.

The annualized return rate for Ethereum staking is currently between 2.5% and 2.7%. After deducting ETF fees and operating costs, investors may achieve a net return rate of 1.9% to 2.2%. Solana staking also offers similar opportunities.

This creates a new revenue model for ETF issuers and provides investors with a new value proposition. Staking ETFs no longer just provide price exposure but become income-generating assets that can justify their fees while providing passive income.

Several Solana ETF applications explicitly include staking provisions, with issuers planning to stake 50-70% of their holdings while retaining liquidity reserves. However, staking will increase operational complexity.

ETF managers managing staked crypto assets face multiple challenges: they must balance maintaining enough unstaked and liquid assets to meet investor redemption demands while staking as much as possible to maximize returns. They also need to manage "slashing" risks, which could lead to loss of funds if validators make mistakes or violate rules. Running validators requires technical expertise and reliable infrastructure to ensure everything runs smoothly and securely.

Fee compression is coming soon

The large number of applications almost guarantees a compression of fees. When 72 products compete for limited institutional funds, pricing becomes the main differentiating factor. Traditional cryptocurrency ETFs charge management fees of 0.15-1.5%, but competition may reduce these fees.

Some issuers may even use staking rewards to subsidize management fees, launching zero-fee or negative-fee products to attract assets. The Canadian market provides a precedent: several Solana ETFs waived management fees in the initial phase.

This fee compression benefits investors, but also puts pressure on the profitability of issuers. Only the largest and most efficient operators will survive the inevitable consolidation. As the market sifts through winners and losers, mergers, bankruptcies, and transformations are expected to occur.

Outlook

The craze for alts ETF is changing people's perceptions of crypto investments.

The Bitcoin ETF has achieved tremendous success. The Ethereum ETF offers a second option, but its adoption rate has been lukewarm due to complexity and disappointing returns. Now, asset management companies believe that different cryptocurrencies serve different purposes.

Solana has become a speed-oriented investment, XRP has become a payment-oriented investment, and Cardano is marketed as "academically rigorous". Even Dogecoin is seen as a story of mainstream adoption. If you are building a portfolio, this makes sense. Cryptocurrency is no longer a strange asset class but has become dozens of investments with different risk characteristics and use cases.

Bitcoin is the largest cryptocurrency by market capitalization and has become an extension of traditional portfolios for many ordinary investors who have participated in the stock market. In contrast, Ethereum has not achieved the same level of mainstream integration. Despite being the second-largest cryptocurrency, most retail and institutional investors do not view Ethereum ETFs as a core part of their portfolios.

We need to observe what different aspects the altcoin ETF will provide to avoid repeating the mistakes of the Ethereum ETF.

But this also shows the degree to which cryptocurrency has deviated from its roots. When meme coins receive ETF applications, when 72 products compete for attention, and when fees are compressed like other commodity businesses, you are witnessing the complete mainstreaming of an industry.

The question is whether this has created real value or merely packaged speculation into a regulatory-approved shell. This may depend on your perspective. Asset management companies see new revenue streams in a crowded market. Investors gain easy exposure to crypto through familiar products.

The market will decide who is right.