The Crypto Assets Market Faces New Changes: Altcoin ETFs Spark Heated Discussion

The price of Bitcoin has experienced a pullback, while the alts market has begun to become active. Ethereum has broken through the $3600 mark, and multiple sectors such as Defi and Layer 2 have generally risen, showing signs of recovery in the alts market. This stands in stark contrast to the market situation a few days ago, when Bitcoin was close to the $100,000 high, while the alts market was in a state of gloom.

Against the backdrop of a more relaxed regulatory environment, Wall Street institutions are turning their attention to altcoin ETFs, injecting new vitality into the long-silent altcoin market.

Looking back at the recent market performance, Bitcoin once reached a high of $99,000, becoming the focus of media attention. However, in this institution-led bull market, most market participants did not share in the liquidity dividends. On the contrary, the altcoins they held have been continuously drained of funds by Bitcoin, showing a downward trend, which stands in stark contrast to the vigorous bull market promotion.

Ethereum, as a representative of mainstream altcoins, has not seen a relative increase comparable to Bitcoin. The ETH/BTC ratio has fallen from 0.053 at the beginning of the year to a low of 0.032, only starting to rebound recently. The performance of other alts has been even less satisfactory.

However, recently there have been signs of recovery in the altcoin market. Coins like SOL, XRP, LTC, and Link have led the way in price increases. The daily trading volume of DEXs in the Solana ecosystem has surpassed $6 billion, and XRP once soared to $1.63. This morning, Ethereum strongly broke through $3,600, driving a widespread rise in the entire altcoin sector, with the Defi sector achieving a 24-hour increase of 8.47%.

Analyzing the reasons for the rise of alts, aside from the emotional boost brought by the overall bull market atmosphere, the participation of Wall Street institutions has also played a key role. ETFs have become the most direct manifestation.

Tracing back to the starting point of this bull market, the launch of 11 Bitcoin spot ETFs has triggered a market frenzy. The involvement of Wall Street giants like BlackRock and Fidelity has accelerated the mainstreaming of Bitcoin and significantly lowered the barriers for investors to participate in the encryption market. After the approval of Bitcoin and Ethereum spot ETFs, the market began to focus on the next token that could attract Wall Street's attention. Considering market capitalization and capital factors, Solana was once the most popular candidate coin.

On June 27, asset management giant VanEck was the first to submit an S-1 form application for the "VanEck Solana Trust" to the SEC. The next day, 21Shares followed suit with a similar application. On July 8, the Chicago Board Options Exchange (Cboe) submitted a 19b-4 filing for the Solana ETFs of VanEck and 21Shares, bringing the hype for the SOL ETF to a climax.

However, the SEC's tough stance quickly cooled the enthusiasm for altcoin ETFs. In August, market rumors suggested that the CBOE had removed the 19b-4 applications for two potential Solana ETFs from its "Pending Rule Changes" page, and analysts believe the chances of approval are slim.

But now, the market environment has changed significantly. On November 22, a document from the Cboe BZX exchange showed that the exchange proposed to list and trade four Solana-related ETFs on its platform. These ETFs are initiated by Bitwise, VanEck, 21Shares, and Canary Funds, and are classified as "commodity-based trust fund shares". If the SEC formally accepts it, the final approval deadline is expected to be in early August 2025.

Not only Solana, but more altcoin ETFs are also in preparation. In the past month, the crypto investment firm Canary Capital submitted spot ETF applications for three coins: 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 these altcoin ETFs has sparked widespread discussion, with the market filled with anticipation for potential capital inflows. However, from an objective perspective, the approval of spot ETFs for Crypto Assets typically requires meeting two implicit conditions: first, they must not be explicitly defined as securities by the SEC; second, there must be leading indicators demonstrating market stability and non-manipulability, with a typical characteristic being that the tokens can be traded on the Chicago Mercantile Exchange (CME). Currently, aside from Bitcoin and Ethereum, it seems that no other Crypto Assets fully meet these standards. In particular, SOL not only has centralization issues but was also explicitly listed as a security in the SEC's allegations against a certain trading platform.

Nevertheless, the market remains optimistic about the ETF approvals for SOL and XRP. Bloomberg ETF analyst James Seyffart believes that the decision approval time for the ETFs of SOL, XRP, LTC, and HBAR may be extended until the end of 2025, and the SEC may approve Solana-related ETFs within two years. ETF Store President Nate Geraci is even more optimistic, believing that there is a strong possibility for the Solana ETF to be approved before the end of next year.

This optimistic sentiment is supported by information, with the core factor pointing to the incoming president. The new government's commitment to Crypto Assets is gradually being fulfilled, and changes in the internal and external regulatory environment have given the Crypto Assets industry greater confidence.

From the perspective of internal industry regulation, the SEC is about to undergo personnel changes. The current SEC chairman will leave office on January 20, 2025, the day the new president officially takes office, which may press the pause button on the SEC's stringent regulations in recent years. According to statistics, during his tenure, the SEC has taken enforcement actions against multiple encryption-related entities, completing thousands of enforcement cases and recovering approximately $21 billion in fines.

Although the next SEC chairperson has not yet been determined, there are rumors that a former SEC commissioner may take over. Against the backdrop of the escalating conflict between cryptocurrency and securities, there are also reports that the new government hopes to expand the powers of the Commodity Futures Trading Commission (CFTC) to strengthen its regulatory authority over the digital asset sector. If this measure is implemented, the likelihood of crypto assets being classified as securities may decrease.

From a broader external perspective, many members of the new government are supporters of Crypto Assets. Among the known candidates for cabinet ministers, five members, including the Secretary of the Treasury, National Security Advisor, Director of National Intelligence, Secretary of Commerce, and Secretary of Health and Human Services, have shown a supportive attitude towards Crypto Assets, with several of them actually holding Crypto Assets.

Clearly, the composition of the new government is very different from before. With many supporters in the higher echelons, regulation of Crypto Assets may become more lenient. If a complete regulatory framework for Crypto Assets can be established during this government's term, the regulatory direction for the industry will also be clearer in the future.

In addition to regulatory aspects, enterprises under the new government have already targeted business opportunities in the crypto field. Recently, these enterprises have been taking frequent actions, aiming to expand the crypto industry landscape through investment and financing. Market news indicates that Trump's media technology company is in talks with the Intercontinental Exchange (ICE) regarding the acquisition of the crypto assets exchange Bakkt. Furthermore, the Trump Media Technology Group has submitted an application for a crypto payment service named Truth Fi, planning to enter the crypto payment sector. These movements from the enterprises reflect the new government's positive attitude towards crypto assets.

It is precisely based on the above factors that the market has rekindled hope for altcoin ETFs. With the change in SEC chair, the securities controversy surrounding altcoins may temporarily subside, laying a preliminary foundation for the realization of ETFs.

On the other hand, even though the prospects for altcoin ETFs remain unclear, Wall Street is unwilling to give up this massive market worth over $30 trillion. Traditional financial institutions are building new investment products and derivatives around Crypto Assets so that investors can incorporate Crypto Assets into their portfolios.

Sui Chung from the crypto index provider CF Benchmarks stated that mainstream investors will establish direct ordinary exposure through spot Bitcoin ETFs, while also customizing their exposure to the asset class through additional products. The most popular products currently include those involving commodity futures linked to Crypto Assets that earn returns, as well as products providing downside protection through options. The company is planning to launch Nasdaq Bitcoin index options.

John Davi, the 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 is challenging to achieve under the existing regulatory framework, in the long run, as regulations loosen and investor interest increases, it will become an inevitable trend for financial institutions to conduct in-depth research on Crypto Assets for the sake of acquiring traffic and market competition. On the product side, institutions will no longer be limited to Bitcoin and Ethereum; the productization and standardization of Crypto Assets will be further strengthened, and the derivatives market may experience explosive growth, aimed at removing barriers for investors to enter the market. It is foreseeable that in the future, investors will have more ways to invest in Crypto Assets-related products.

Apart from the new products that have not yet been launched, existing ETFs will also benefit from this trend. Taking the Ethereum spot ETF as an example, its capital inflow has long been weaker than that of Bitcoin. As of November 27, the net inflow of Ethereum spot ETF funds was approximately $240 million, while the net inflow of Bitcoin spot ETF reached as high as $30.384 billion, showing a significant gap between the two.

The reasons for this discrepancy can be summarized in two points: first, there are differences in value stability and positioning between Ethereum and Bitcoin; second, the core staking function of ETH is restricted by regulations, which dampens investor enthusiasm. From a cost perspective, if investors hold ETH directly, they can obtain about 3.5% staking returns, whereas holding institutional ETFs not only does not yield this risk-free return but also incurs management fees ranging from 0.15% to 2.5%.

However, with the shift in regulatory attitudes, the future Ethereum spot ETF may include staking features. The SEC's previously firm opposition to staking has changed, and there are precedents in the European market. Recently, European ETP issuer 21Shares AG announced the addition of staking features to its Ethereum core ETP product.

Despite the promising outlook for ETF products, actual capital inflows remain to be observed. Even Ethereum's appeal to traditional capital is relatively limited, as the total assets of the Solana Trust under a certain company amount to only $70 million, indicating that the investment purchasing power for alts may not be as optimistic as expected. As a result, the head of the digital asset department of a large asset management company has stated that the company has little interest in other crypto assets apart from Bitcoin and Ethereum.

Regardless of how the subsequent approvals progress, market speculation surrounding altcoin ETFs has already begun, which is undoubtedly a shot in the arm for the long-dormant alts market.