Since October, the cryptocurrency market has been shrouded in a downward shadow: mainstream tokens are fluctuating, capital is flowing out, and sentiment is low, with investors exhibiting a strong sense of caution. However, amidst the overall gloomy market sentiment, a wave of cryptocurrency ETFs is quietly emerging. Several crypto ETFs focusing on altcoins and diversified baskets of currencies have been approved and listed on exchanges, providing institutions and retail investors with a "more formal and convenient" buying channel, while injecting new liquidity and attention into the industry.

In the past two months, the targets of cryptocurrency ETFs listed in the U.S. market have begun to expand from traditional Bitcoin (BTC) and Ethereum (ETH) to mainstream altcoins such as Solana (SOL), Ripple (XRP), and Dogecoin (DOGE). According to data compiled by Bloomberg Intelligence, there are currently about 130 ETF applications related to altcoins awaiting approval from the U.S. Securities and Exchange Commission (SEC), covering various assets including DOT, LINK, and PENGUN.

Prior to this, Bitwise launched the Solana Staking ETF (BSOL), which officially listed at the end of October, becoming the first ETF in the U.S. to provide spot exposure to Solana while also incorporating on-chain staking yields. The product's trading volume exceeded $50 million on its first day, showcasing impressive performance; shortly thereafter, Grayscale converted its Solana Trust into an ETF; in late November, Grayscale pushed for the launch of two highly anticipated altcoin products: the Dogecoin ETF (GDOG) and the XRP ETF (GXRP), both of which began trading on the New York Stock Exchange on the same day. This marked the first time DOGE and XRP entered mainstream U.S. trading platforms in the form of spot ETFs.

However, since the sharp drop on October 11, the heat in the cryptocurrency market has significantly cooled. Industry insiders point out that most ETF applications were submitted during optimistic market conditions, but the current market environment has posed challenges to the issuance logic.

According to data service provider FactSet, BlackRock's iShares Bitcoin Trust ETF experienced a net outflow of $2.2 billion this month, marking the second-largest monthly outflow since the fund's launch in early 2024. In comparison, the fund only saw an outflow of $291 million in October last year, with this month's outflow nearly eight times that amount.

Behind the capital outflow is the sharp decline in Bitcoin's price. As of Wednesday, Bitcoin's latest quote was $87,870, down more than 20% from last month and over 40% from the historical high of approximately $126,000 set in early October. This makes November 2023 the worst month for Bitcoin since June 2022, when its price fell about 39% in a single month.

Although the CME FedWatch tool indicates that traders are currently pricing in an 80% probability of a Federal Reserve rate cut in December, actual policy remains uncertain. As a result, market investors are increasingly turning to allocate to safe-haven assets like gold to cope with the increasingly uncertain economic environment and signs of deteriorating market sentiment.

This could lead to a vicious cycle: for investors in Bitcoin spot ETFs, especially those who recently entered the market, the market pressure forces them to sell their holdings, which may further drag down Bitcoin's price in the short term.

Linh Tran, a market analyst at global multi-asset brokerage XS.Com, pointed out that in the first half of this year, spot ETFs were the main driving force behind Bitcoin's record highs. However, as institutional capital flows have shifted, Bitcoin's price has been negatively impacted.

Frank Chaparro, content director at GSR Trading Company, stated, "The uncertainty of the macro environment prompts investors to reduce their risk exposure, which usually means cutting back on investments in cryptocurrencies and other high-risk stocks. For new investors, any decline can lead to rapid sell-offs."

However, Joshua Levine, chairman of Brazil's largest Bitcoin reserve company OranjeBTC, believes that while spot Bitcoin ETFs attract a large number of retail investors who are susceptible to market fluctuations, they also attract institutional investors who can hold for the long term. The participation of such institutional investors may help mitigate extreme declines to some extent while also suppressing rapid increases in Bitcoin, thereby reducing its volatility.

Cryptocurrency ETFs, or exchange-traded funds, are investment products traded on stock exchanges, operating similarly to traditional ETFs, but with underlying assets being cryptocurrencies such as Bitcoin, Ethereum, or altcoins. When investors purchase ETF shares, they indirectly hold the underlying cryptocurrencies, eliminating the need to manage private keys or directly purchase digital currencies on exchanges. Some crypto ETFs also offer additional yield mechanisms, such as on-chain staking rewards, allowing investors to earn interest or rewards while holding the ETF.

Cryptocurrency ETFs are suitable for investors who wish to participate in the digital asset market but do not want to bear the risks associated with direct holding, including both retail and institutional investors. For beginners or those with lower risk tolerance, ETFs provide a formal trading channel, relatively transparent pricing, and liquidity, helping to reduce security and operational risks. For institutional investors, ETFs facilitate integration into existing portfolios, comply with regulatory requirements, and can be used for asset allocation, risk management, or hedging operations.

Related: The crypto industry enters the product era: Asian developers are taking over the next round of dominance.

Original article: “Ill-timed Crypto ETFs: Altcoin Products Launch Amid Market Chill”

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