Bitcoin pulls back, altcoin ETFs soar.
The bull market trend continues to spread. Despite Bitcoin's rise and fall, Ethereum has reversed its downward trend and broken through $3600, with multiple sectors such as DeFi and Layer 2 experiencing a broad rally. The altcoin market is finally showing signs of revival. However, just a few days ago, the situation was quite different. At that time, Bitcoin was close to $100,000, while altcoins were in despair, with the market in a state of survival mode.
The altcoin market was bleak, but Wall Street had other ideas. With unprecedented regulatory tailwinds, Wall Street has turned its attention to altcoin ETFs, providing a much-needed boost to the long-silent altcoin market.
Just a week ago, Bitcoin continued to break through and reached $99,000, making headlines across major media outlets, but the usually active community was surprisingly silent. In this round of institution-led bull market, most market participants did not benefit from liquidity overflow; instead, the altcoins they held were continuously drained by Bitcoin, showing a downward trend. Compared to the loud bull market promotions, participants felt a sense of unspoken frustration.
A typical example is Ethereum. Compared to other altcoins, ETH is already recognized as a mainstream cryptocurrency, but in terms of price trends, its rise is far less than that of Bitcoin. The exchange rate between ETH and BTC has continuously decreased this year, dropping from 0.053 to a low of 0.032, only recently starting to rebound. If Ethereum is like this, other cryptocurrencies are even less fortunate.
However, recently, the dormant altcoin market seems to have come alive. Coins like SoL, XRP, LTC, and Link started to rally last weekend, with Solana's DEX daily trading volume surpassing $6 billion, and XRP rising to $1.63. This morning, Ethereum surged past $3600, leading to a broad rally in the altcoin sector, with the DeFi sector rising 8.47% in 24 hours.
Regarding the reasons for the altcoin surge, in addition to the positive sentiment brought by the bull market, Wall Street has played a significant role, with ETFs being the most direct manifestation.
Tracing back to the beginning of this bull market, 11 Bitcoin spot ETFs ignited the frenzy. The entry of Wall Street giants like BlackRock and Fidelity has accelerated the mainstreaming of Bitcoin and quickly lowered the barriers for market participation in the crypto market. At that time, Bitcoin and Ethereum spot ETFs were approved one after another, and the market was abuzz with speculation about the next token that would attract Wall Street's interest. Due to market capitalization and capital considerations, Solana was the most talked-about cryptocurrency.
On June 27, asset management giant VanEck took the lead by submitting an S-1 form for the "VanEck Solana Trust" to the SEC. The next day, 21Shares followed suit with its own S-1 application. On July 8, the Chicago Board Options Exchange (Cboe) officially submitted a 19b-4 filing for VanEck and 21Shares' Solana ETF, bringing the SOL ETF hype to a climax.
However, the good times did not last long, as the SEC's tough stance quickly cooled the altcoin ETF enthusiasm. In August, market news indicated that CBOE had removed the 19b-4 applications for two potential Solana ETFs from its "Pending Rule Changes" page, with analysts stating that "approval is unlikely."
But now, the market remains, and the situation has changed significantly. On November 22, Cboe BZX exchange documents showed that the exchange proposed to list and trade four Solana-related ETFs on its platform. The ETFs are initiated by Bitwise, VanEck, 21Shares, and Canary Funds, classified as "Commodity-Based Trust Shares," submitted under rule 14.11(e)(4). If the SEC formally accepts the applications, the final approval deadline is expected to be in early August 2025.
Not just Solana, more ETFs are on the way. In the past month, crypto investment firm Canary Capital has submitted spot ETF applications for XRP, Litecoin, and HBAR to the SEC. According to Nate Geraci, president of ETF Store, at least one issuer is currently attempting to apply for an ETF for ADA (Cardano) or AVAX (Avalanche).
The emergence of altcoin ETFs has sparked widespread discussion, and the influx of funds from afar has made the market boil. Is the wild west of crypto ETFs really coming?
From an objective perspective, reviewing the previous approval processes for Bitcoin and Ethereum, cryptocurrencies approved for spot ETFs generally need to meet two implicit requirements: first, they must not be explicitly classified as securities by the SEC; second, there must be leading indicators proving market stability and non-manipulability, typically characterized by the ability to trade the tokens on the Chicago Mercantile Exchange (CME), meaning they must first be listed on the futures market. In this regard, aside from Bitcoin and Ethereum, it seems that there are currently no other cryptocurrencies in the market that meet the standards. The approval of more centralized currencies is even more challenging, especially for SOL, which not only has significant centralization but was also explicitly listed as a security in the SEC's accusations against Binance.
Nevertheless, the market remains optimistic about the ETF approvals for SOL and XRP. James Seyffart, an ETF analyst at Bloomberg, believes that the decision timeline for SOL, XRP, LTC, and HBAR ETFs may extend to the end of 2025, and the SEC may approve Solana-related ETFs within two years. Nate Geraci, president of ETF Store, is even more optimistic, stating that the Solana ETF is likely to be approved before the end of next year.
Behind this optimism is naturally information support, with the core factor pointing to the incoming president, Trump. Trump's commitments to crypto are actively being fulfilled, and the changes in the internal and external regulatory environment have given the cryptocurrency industry stronger confidence.
From the perspective of industry regulation, the SEC, the main regulatory body for cryptocurrencies, is about to undergo a change. Current SEC Chairman Gary Gensler has announced his resignation, stating he will leave on January 20, 2025, the day Trump officially takes office, finally pressing the pause button on the SEC's stringent regulations in recent years. During his tenure, Gensler took enforcement actions against multiple entities, including Coinbase, Kraken, Robinhood, OpenSea, Uniswap, and MetaMask, completing thousands of enforcement cases and recovering approximately $21 billion in fines, making him a well-known opponent of crypto in the industry.
Although the next SEC chairman has not yet been selected, insiders suggest that former SEC commissioner Paul Atkins may replace Gary Gensler. Amid the increasingly fierce debate over whether cryptocurrencies are securities or commodities, there are also rumors that the Trump administration hopes to expand the powers of the Commodity Futures Trading Commission (CFTC) to strengthen its regulatory authority over the digital asset space. If this move is realized, the classification of crypto assets as securities may be weakened.
From a broader external environment perspective, the Trump administration is a gathering place for cryptocurrency players. Among all cabinet minister candidates in Trump's new administration, aside from well-known market figures like Musk and Howard Lutnick, five members, including Treasury Secretary Scott Bessent, National Security Advisor Michael Waltz, Director of National Intelligence Tulsi Gabbard, Commerce Secretary Howard Lutnick, and Secretary of Health and Human Services Robert F. Kennedy Jr., are all crypto supporters. Notably, Waltz, Lutnick, and Gabbard actually hold cryptocurrencies, and Lutnick is a super fan of Bitcoin, holding hundreds of millions in Bitcoin, and his company Cantor Fitzgerald has provided custodial services for Tether for many years.
It is evident that the composition of this administration is entirely different from before. With many supporters in high positions, the regulation of cryptocurrencies is bound to trend towards leniency. If a comprehensive regulatory framework for crypto assets is established during this administration's term, the subsequent regulatory direction for the industry will also become clearer.
Beyond regulation, Trump's enterprises have also been quick to seize business opportunities. Recently, they have been active in expanding the crypto industry through investment and financing. Market news indicates that Trump's media technology company is negotiating with the Intercontinental Exchange (ICE) regarding the potential acquisition of the cryptocurrency exchange Bakkt. Just recently, Trump's media technology group submitted an application for a cryptocurrency payment service called Truth Fi, planning to enter the crypto payment field. The company's actions further reflect the president's positive attitude towards crypto.
It is based on these factors that the market has rekindled hope for altcoin ETFs. After all, with the end of the SEC chairman's term, the discussions around the securities classification of altcoins are expected to cease, laying a preliminary foundation for the realization of ETFs.
On the other hand, even if the future of altcoin ETFs is unpredictable, Wall Street is unwilling to give up on this massive market worth over $30 trillion. Traditional institutions are building new investment products and derivative tools around crypto assets to facilitate investors in incorporating crypto assets into their portfolios.
Sui Chung, who operates a crypto index provider CF Benchmarks, stated that mainstream investors will establish direct ordinary exposure trends through spot Bitcoin ETFs and will also customize exposure to the asset class through additional products. Among the most popular products are those involving commodity futures linked to cryptocurrencies that earn yields, as well as products providing downside protection through options. Currently, the company is planning to launch Nasdaq Bitcoin index options.
John Davi, Chief Investment Officer of Astoria Portfolio Advisors, also mentioned that he is considering increasing Bitcoin exposure in the ETF model portfolio he manages.
Overall, although the current altcoin ETF craze faces challenges in achieving success under the current regulatory backdrop, from a long-term perspective, as regulations loosen and investor interest increases, institutions will objectively delve deeper into crypto assets for the sake of attracting traffic and market competition. On the product side, institutions will no longer be limited to Bitcoin and Ethereum, and the productization and standardization of crypto assets will be further strengthened, with derivatives likely to experience a boom aimed at clearing obstacles for investors to enter the market. It can be anticipated that investors will have more ways to invest in products related to cryptocurrencies.
In addition to the new products yet to be launched, existing ETFs will also benefit from this trend. Taking Ethereum spot ETFs as an example, for a long time, the fund inflow for Ethereum spot ETFs has been weaker than that of Bitcoin. As of November 27, the net inflow of funds for Ethereum spot ETFs was approximately $240 million, while the net inflow for Bitcoin spot ETFs reached as high as $30.384 billion, a significant difference.
The reason for this is that Ethereum inherently has disadvantages compared to Bitcoin due to its value stability and positioning differences, and the SEC's rejection of its core staking function has further diluted investor enthusiasm. To explain in terms of cost, if investors hold ETH directly, they can earn nearly 3.5% staking yield, but if they hold institutional ETFs, they not only miss out on this risk-free yield but also have to pay management fees ranging from 0.15% to 2.5% to the issuer.
However, with the change in regulation, Ethereum spot ETFs may not be out of touch with staking. After all, the SEC's previously firm rejection of staking has changed, and there are precedents in Europe. Recently, European ETP issuer 21Shares AG announced the addition of staking functionality to its core Ethereum ETP product.
Of course, while ETFs are appealing, actual fund inflows remain to be seen. Even Ethereum's attractiveness to traditional capital is quite limited; Grayscale's Solana Trust has total assets of only $70 million, indicating that the purchasing power for altcoins may not be as optimistic as imagined. As a result, Robert Mitchnik, head of BlackRock's digital asset division, has mentioned that the company is not very interested in other crypto products beyond Bitcoin and Ethereum.
But regardless of how the subsequent approvals progress, the hype surrounding altcoin ETFs has already begun, providing a timely boost to the long-suffering altcoin market.
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