Welcome back to Distributed Ledger. This is Frances Yue, crypto reporter at MarketWatch.
Since President Donald Trump’s election win in November, several asset managers have filed applications with regulators for a number of exchange-traded funds with plans to invest in minor crypto coins.
These “altcoins” could include solana SOLUSD, XRP XRPUSD, dogecoin DOGEUSD and even Trump’s own meme coin TRUMPUSD, which was launched right before his inauguration in January. (Altcoins refer to any crypto with a smaller market capitalization than bitcoin.)
Read: Smaller cryptos may gain more than bitcoin under Trump – should you invest?
The U.S. Securities and Exchange Commission so far has only approved ETFs that directly invest in bitcoin BTCUSD and ether ETHUSD, respectively.
Digital-asset traders have been hoping that under Trump’s second term, the SEC — which has already established a crypto task force led by Commissioner Hester Peirce — will approve several altcoin ETFs, which could drive up prices for these coins.
However, with expectations for altcoin ETF approvals running high, investors may wonder if potential gains already have been priced into the market.
I caught up with Shubh Varma, co-founder and chief executive at crypto research and trading platform Hyblock Capital, and Eric Rose, head of digital-asset execution at StoneX Digital, to talk about the potential demand for altcoin ETFs in the months ahead.
altcoin ETFs.
What is expected?
Investors have been widely expecting a more crypto-friendly SEC to approve applications for the solana and XRP ETFs. On cryptocurrency-based prediction market Polymarket, traders were pricing in a 83% chance that the SEC will approve the solana ETFs in 2025, and a 80% chance that the regulator will greenlight the XRP ETFs this year.
A spokesperson at the SEC declined to comment.
Still, people have only priced the favorable odds that some of the ETFs could get approved — not the amount of capital inflows that these ETFs could see, noted Hyblock’s Varma.
While the approval of bitcoin ETFs in January 2024 was widely expected, these new funds saw significant inflows after they started trading, which further drove up bitcoin’s price, Varma said.
However, it remains a question how much demand altcoin ETFs would see if they were launched.
For example, ether ETFs, which started trading in July of last year, have seen considerably less inflows than their bitcoin counterparts. Bitcoin is by far the world’s largest cryptocurrency by market capitalization.
Ether ETFs, which have been trading for 135 days as of Tuesday, have seen about $2.8 billion in cumulative net inflows so far, according to Dow Jones Market Data. That was dwarfed by the cumulative net inflows of $17.5 billion seen by bitcoin ETFs in their first 135 days of trading.
Ether’s market cap stands at around $333 billion, roughly 17.3% of bitcoin’s market cap of $1.9 trillion. XRP and solana’s market caps are even smaller, standing at around $139.7 billion and $96.8 billion, respectively.
The key question lies in whether the ETFs investing in XRP, solana and other smaller cryptos would generate enough interest from non-crypto-native investors, said StoneX’s Rose.
Investors can now buy solana and XRP on major crypto exchanges such as Coinbase COIN, but “you also have this whole investment community that doesn’t have an understanding or the comfortability to set up a crypto-specific account,” Rose said in a phone interview.
If that wider community chooses to invest in smaller cryptocurrencies through traditional brokerage accounts, it could drive inflows into altcoin ETFs and push up those cryptos’ prices, Rose added.
Crypto in a snap
Bitcoin BTCUSD declined 7.1% over the past seven days, to trade at around $97,420 on Wednesday morning. Ether ETHUSD lost around 11.3% over the past seven days, to around $2,785, according to Dow Jones Market Data.
