The gold rush for altcoin ETFs

Foreword

January 2024 feels like another time. It’s only been eighteen months, but it seems so far away in retrospect. For crypto, it’s like The Bridge on the River Kwai.

On January 11, 2024, the spot Bitcoin ETF began trading on Wall Street. About six months later, on July 23, 2024, the spot Ethereum ETF debuted. Fast forward eighteen months later, and the U.S. Securities and Exchange Commission’s (SEC) desk is filled with applications—72 crypto ETF applications and counting.

From Solana to Dogecoin, Ripple (XRP) and even PENGU, asset managers are racing to package every possible digital asset into regulated products. Bloomberg analysts Eric Balchunas and James Seyffart put the probability of approval for most applications at "90% or higher," suggesting we are about to witness the largest expansion of crypto investment products in history.

2024 is nothing like 2025 is now. Back then it was a hard fight for approval, now everyone wants a piece of the action.

Bitcoin’s $107 Billion Wealth

To understand why altcoin ETFs matter, you first need to understand that the success of spot Bitcoin ETFs has far exceeded expectations. They have rewritten the entire playbook for asset management.

In one year, Bitcoin ETFs pulled in $107 billion, making it the most successful ETF launch ever—and 18 months later, assets were at $133 billion.

BlackRock’s IBIT alone holds 694,400 Bitcoins worth more than $74 billion. All ETFs combined control 1.23 million Bitcoins—about 6.2% of the total supply in circulation.

When BlackRock’s Bitcoin ETF amassed $70 billion in assets faster than any fund in history, what did it prove? The demand for exposure to crypto assets through traditional investment vehicles is real, huge, and under-tapped. Institutions, retail investors, just about everyone lined up.

This success created a feedback loop that proved the concept: As ETFs siphoned Bitcoin supply, exchange-traded balances fell. Institutional holdings accelerated. Bitcoin price stability improved. The entire cryptocurrency market gained unprecedented legitimacy. Institutional money continued to flow in, even during market volatility. These are not day traders or retail speculators, but pension funds, family offices and sovereign wealth funds that see Bitcoin as a legitimate asset class.

It is this success that has led to about 72 altcoin applications queuing up at the SEC as of April.

Why do we need ETFs?

You can buy altcoins on crypto exchanges, so what is the use of ETFs? At the heart of how markets work is mainstream acceptance. ETF status is a milestone for cryptocurrencies.

This legitimacy allows them to exist on traditional stock exchanges under existing financial regulations. Crypto ETFs allow investors to buy and sell digital assets through regular brokerage accounts like stocks.

For retail investors, who mostly don’t understand how cryptocurrencies work, this is a lifesaver. No need to set up wallets, protect private keys or deal with the technical details of blockchain. Even if you overcome the wallet hurdle, risks remain—hacking, lost private keys, and exchange crashes. ETFs have custody and security managed by investors and offer highly liquid assets traded on major traditional exchanges.

Altcoin Gold Rush

These applications reveal what’s to come. Major players like VanEck, Grayscale, Bitwise, and Franklin Templeton have filed for the Solana ETF, which has a 90% chance of approval. Nine independent issuers are also looking to get in on the SOL action, including newcomer Invesco Galaxy, whose proposed ticker is QSOL.

Ripple (XRP) is hot on its heels, with multiple applications for the payments-focused cryptocurrency. ETFs for Cardano, Litecoin, and Avalanche are also in the process of review.

Even memecoins are no exception. Major issuers have filed ETFs for Dogecoin and Penguin.

“I’m surprised we haven’t seen a Fartcoin ETF filing yet,” Bloomberg’s Eric Balciunas said on X.

Why is this happening now? It’s the result of a confluence of forces that have created the perfect environment for altcoin ETFs to proliferate. The Trump administration’s friendly approach to cryptocurrencies marks a dramatic shift in regulation, with new SEC Chairman Paul Atkins doing away with Gary Gensler’s “regulation through enforcement” approach and establishing a crypto task force to develop clear rules.

The culmination of this regulatory thaw was the SEC’s recent clarification that “protocol staking activity” does not constitute a securities offering — a stark reversal from the previous administration’s aggressive pursuit of staking providers like Kraken and Coinbase.

Institutional acceptance of Bitcoin and altcoins, combined with the boom in corporate cryptocurrency reserves and Bitwise research showing that 56% of financial advisors are now willing to allocate to crypto assets, has created unprecedented demand for diversified crypto exposure beyond Bitcoin and Ethereum.

Economic Reality Check

While the Bitcoin ETF demonstrated that there is huge institutional demand, early analysis suggests that the acceptance of altcoin ETFs will be very different. Katalin Tischhauser, head of research at Sygnum Bank, expects total inflows into altcoin ETFs to be "hundreds of millions to $1 billion" — well below Bitcoin's $107 billion achievement. Even by the most optimistic estimates, total inflows into altcoin ETFs are less than 1% of Bitcoin's achievement. This makes economic sense from a fundamental perspective. Ethereum's performance further highlights this gap. Despite being the second-largest cryptocurrency, its ETF has attracted only about $4 billion in net inflows in 231 trading days — just 3% of Bitcoin's $133.3 billion achievement. Even with an additional $1 billion in inflows in the last 15 trading days, Ethereum's institutional appeal is still far less than Bitcoin's, suggesting that altcoin ETFs face a tougher challenge in attracting investor attention.

Bitcoin benefits from first-mover advantage, regulatory clarity, and a “digital gold” narrative that is easily understood by institutions.

Now, 72 applications are chasing a market that may only support a few winners.

Staking changes the rules of the game

One ​​difference between altcoin ETFs and Bitcoin ETFs is that they earn returns through staking. The SEC’s staking approval opens the door for ETFs to stake their holdings and distribute returns to investors.

Ethereum staking currently yields between 2.5-2.7% annualized. After deducting ETF fees and operating costs, investors may receive a net yield of 1.9-2.2%—not high by traditional fixed income standards, but significant when combined with potential price appreciation.

Solana’s staking offers a similar opportunity.

This creates a new revenue model for ETF issuers and a new value proposition for investors. Instead of simply providing price exposure, staking ETFs become yield-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. Invesco Galaxy’s Solana ETF application specifically mentions using “trusted staking providers” to generate additional returns. But staking can add operational complexity.

ETF managers managing staked crypto assets face multiple challenges: they must balance keeping enough unstaked and liquid assets to meet investor redemption needs while staking as much as possible to maximize returns. They also need to manage the risk of “slashing,” which is the potential loss of funds if validators (nodes that help secure the network) make mistakes or break the rules. Running validators requires technical expertise and reliable infrastructure to ensure everything goes smoothly and securely. As such, it’s not an easy risk to manage. Managing a crypto ETF with a staked asset is a complex balancing game. While not impossible, it’s difficult to do.

For the Bitcoin and Ethereum ETFs that have been approved and launched, staking was not an option because the SEC, led by Gary Gensler, believed that staking violated securities laws and constituted an unregistered securities offering. That’s no longer the case.

Fee compression is coming

The sheer volume of applications almost guarantees fee compression. When 72 products compete for limited institutional money, pricing becomes a major differentiator. Traditional cryptocurrency ETFs charge management fees of 0.15-1.5%, but competition could drive those fees down.

Some issuers may even use staking returns 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 their initial stages.

Such fee compression benefits investors, but it also puts pressure on issuers' profitability. Only the largest and most efficient operators will survive the inevitable consolidation. As the market sifts out winners and losers, expect mergers, closures, and transformations.

Our View

The craze for altcoin ETFs is changing the way people think about crypto investing.

Bitcoin ETFs have been a huge success. Ethereum ETFs offer a second option, but their adoption has been tepid due to complexity and disappointing returns. Now, asset managers see different uses for different cryptocurrencies.

Solana became a speed investment, XRP became a payments investment, Cardano was sold as “academic rigor”, and even Dogecoin was seen as a mainstream adoption story. If you are building a portfolio, this makes sense. Cryptocurrencies are no longer one weird asset class, but dozens of investments with different risk profiles and use cases.

Bitcoin, the largest cryptocurrency by market cap, has become an extension of the traditional portfolio for many regular investors who are already involved in the stock market. For these investors, Bitcoin is seen as a complementary asset class that provides diversification and a hedge against market uncertainty. In contrast, Ethereum has not achieved the same mainstream integration. Despite being the second largest cryptocurrency, most retail and institutional investors do not see Ethereum ETFs as a core part of their portfolios.

We need to watch what differences altcoin ETFs will offer to avoid repeating the mistakes of the Ethereum ETF.

But it also shows how far crypto has strayed from its roots. When memecoins get ETF applications, when 72 products vie for attention, and when fees are compressed like any other commodity business, you are witnessing the complete mainstreaming of an industry.

The question is whether this is creating real value or just speculation wrapped in a regulatory veneer. It probably depends on your perspective. Asset managers see new revenue streams in a crowded market. Investors get easy crypto exposure through familiar products.

The market will decide who is right.