Wall Street institutions are eyeing the altcoin market

Bitcoin pulls back, while altcoin ETFs soar.

The bull market is still spreading. Although Bitcoin has risen and fallen, Ethereum has reversed its decline and broken through $3,600. Defi, Layer2 and other sectors have seen a general rise, and the altcoin market has finally begun to rejuvenate. But a few days ago, the situation was quite different. At that time, Bitcoin was close to $100,000, but altcoins were wailing everywhere, and the market was in a state of survival.

The altcoins were bleak, but Wall Street had its eyes on them. Under the unprecedented regulatory benefits, Wall Street has set its sights on altcoin ETFs, and has also given the long-dormant altcoin market a winter charcoal fire.

Just a week ago, Bitcoin continued to break through to $99,000 and made headlines in major media, but the community, which has always been active, was rarely silent. In this round of institutional-led bull market, most market participants did not get liquidity overflow. Instead, the altcoins they held were constantly sucked by Bitcoin, showing a negative decline. Compared with the vigorous bull market propaganda, participants felt bitter.

A typical example is Ethereum. Compared with other altcoins, ETH is already a recognized mainstream currency, but in terms of price trends, the relative rise is far less than Bitcoin. The exchange rate between ETH and BTC has continued to decline this year, from 0.053 to a minimum of 0.032, until recently it began to rebound. Even Ethereum is like this, and other currencies are even more so.

But just recently, the dormant altcoin market seems to have come alive. SoL, XRP, LTC and Link were launched last weekend. Solana's DEX daily average trading volume exceeded 6 billion US dollars, and XRP rose to 1.63 US dollars. This morning, Ethereum rose strongly to over 3,600 US dollars. The altcoin sector ushered in a general rise, and the Defi sector rose by 8.47% in 24 hours.

When it comes to the reasons for the rise of altcoins, in addition to the positive sentiment brought by the bull market, Wall Street has made an indispensable contribution, and ETF is the most intuitive presentation.

Tracing back to the beginning of this round of bull market, 11 Bitcoin spot ETFs have set off a boom. The entry of Wall Street giants such as BlackRock and Fidelity has promoted the mainstreaming of Bitcoin and rapidly lowered the threshold for market participation in the crypto market. At that time, Bitcoin and Ethereum spot ETFs were approved one after another, and the market had different opinions on the next token that could make Wall Street excited. Due to market value and capital considerations, Solana was once the most popular currency.

On June 27, asset management giant VanEck took the lead and submitted an S-1 form for "VanEck Solana Trust" to the SEC. The next day, 21Shares followed suit and submitted an S-1 application. On July 8, the Chicago Board Options Exchange Cboe officially submitted the 19b-4 document for VanEck and 21Shares' Solana ETF, bringing this wave of SOL ETF hype to a climax.

The good times did not last long, and the SEC's tough attitude quickly cooled down the altcoin ETF. In August, market news said that CBOE had removed the 19b-4 applications for two potential Solana ETFs from the "pending rules change" page on its website, and analysts bluntly said that "there is no hope of passing."

But now, the market is still there, but the situation is very different. 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 were initiated by Bitwise, VanEck, 21Shares and Canary Funds, and were classified as "commodity-based trust fund shares" and submitted in accordance with Rule 14.11(e)(4). If the SEC formally accepts it, the final approval deadline is expected to be early August 2025.

Not only Solana, more ETFs are on the way. In the past month, crypto investment company Canary Capital has submitted spot ETF applications for three currencies, including XRP, Litecoin, and HBAR, to the US SEC. According to Nate Geraci, president of ETF Store, at least one issuer is currently trying to apply for an ETF for ADA (Cardano) or AVAX (Avalanche).

The emergence of altcoin ETFs has sparked widespread heated discussions, and the inflow of funds from far away has made the market boil. Is the Wild West of crypto ETFs really coming?

From an objective perspective, looking back at the approval process of Bitcoin and Ethereum, cryptocurrencies need to meet two implicit requirements to be approved for spot ETFs. One is that they have not been explicitly defined as securities by the China Securities Regulatory Commission; the other is that there must be leading indicators to prove market stability and non-manipulability. The typical feature is that the tokens can be traded on the Chicago Mercantile Exchange (CME) in the United States, that is, they are listed on the futures market first. From this point of view, apart from Bitcoin and Ethereum, there seems to be no one in the current crypto market that meets the standards. The approval of more centralized currencies is even more difficult, especially SOL, which is not only prominently centralized, but has also been clearly listed as a security in the US SEC's accusation against Binance.

But despite this, the market is still positive about the approval of SOL and XRP ETFs. James Seyffart, an authoritative ETF analyst at Bloomberg, believes that the decision-making and approval timeline for SOL, XRP, LTC and HBAR ETFs may be extended to the end of 2025, and the SEC may approve Solana-related ETFs within two years. Nate Geraci, president of ETF Store, is more optimistic, saying that by the end of next year, the Solana ETF will most likely be approved.

There is naturally information to support the optimism, and the core factor points to the incoming President Trump. Trump's commitment to encryption is being actively fulfilled, and changes in the internal and external regulatory environment have given the cryptocurrency industry stronger confidence.

In terms of industry supervision, the SEC, the main regulatory department of cryptocurrency, is about to usher in a change of blood. The current SEC Chairman Gary Gensler has voluntarily stepped down and announced that he will leave on January 20, 2025, the day Trump officially takes office, finally pressing the pause button on the SEC's strict supervision in recent years. According to statistics, during his tenure, Gensler has taken enforcement actions against multiple entities such as Coinbase, Kraken, Robinhood, OpenSea, Uniswap, MetaMask, etc., and has completed thousands of enforcement cases and recovered about $21 billion in fines. He is a well-known crypto opponent in the industry.

Although the next SEC Chairman has not yet been selected, people familiar with the matter said that former SEC Commissioner Paul Atkins may take over Gary Gensler's position. At a time when the battle over cryptocurrency securities is becoming increasingly fierce, there are also rumors that the Trump administration hopes to expand the power of the Commodity Futures Trading Commission (CFTC) and strengthen its regulatory power in the field of digital assets. If this move is realized, the securities attribute of crypto assets may be weakened.

From a broader external environment, the Trump administration can be regarded as a gathering place for cryptocurrency players. Among all the cabinet ministers of the new Trump administration, in addition to the well-known names in the market such as 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 Kennedy Jr. are all crypto supporters. Among them, Waltz, Lutnick, and Gabbard actually hold cryptocurrencies. Lutnick is a super fan of Bitcoin. Not only does he hold hundreds of millions of dollars in Bitcoin, but his company Cantor Fitzgerald has provided custody services for Tether for many years.

It is obvious that the composition of this government is completely different from the previous one. Since the superstructure is mostly supporters, the regulation of cryptocurrencies will inevitably be relaxed. If a comprehensive regulatory framework for crypto assets is completed during the term of this government, the subsequent industrial regulatory orientation will also be clearer.

Beyond regulation, Trump's companies have already targeted business opportunities. Recently, they have been active, committed to expanding the crypto industry through investment and financing. Market sources said that Trump Media Technology is negotiating with the Intercontinental Exchange (ICE) to discuss the proposed acquisition of the cryptocurrency exchange Bakkt. Just a few days ago, Trump Media Technology Group submitted an application for a cryptocurrency payment service called Truth Fi, planning to enter the field of crypto payments. The company's moves once again reflect the president's positive attitude towards cryptocurrencies from the side.

It is based on the above factors that the market has rekindled hope for altcoin ETFs. After all, with the end of the SEC chairman, the securities arguments surrounding altcoins are expected to stop, laying a preliminary foundation for the realization of ETFs.

On the other hand, even if the direction of the altcoin ETF is unpredictable, Wall Street is unwilling to give up this huge market of more than 3 trillion. Traditional institutions are building new investment products and derivatives around crypto assets to facilitate investors to include crypto assets in their asset portfolios.

Sui Chung, who runs the crypto index provider CF Benchmarks, said that mainstream investors will establish direct general exposure trends through spot Bitcoin ETFs, and will also customize exposure to asset classes through additional products. Among them, the most popular products include products involving commodity futures that are linked to cryptocurrencies and earn income, and products that provide 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 currently considering adding Bitcoin exposure to the ETF model portfolio he runs.

Overall, although the current trend of copycat ETFs is still difficult to achieve under the current regulatory background, from a long-term perspective, with the relaxation of regulations and the increase in investor interest, it will become an objective reality for institutions to conduct in-depth research on crypto assets for the sake of traffic acquisition 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. Derivatives may usher in a blowout, aiming to clear obstacles for investors to enter the market. It can be foreseen that investors will have more ways to invest in products related to cryptocurrencies.

In addition to new products that have not yet been launched, existing ETFs will also benefit from this trend. Take Ethereum spot ETF as an example. For a long time, the capital inflow of Ethereum spot ETF has been weaker than that of Bitcoin. According to data, as of November 27, the net inflow of Ethereum spot ETF funds was about US$240 million, while the net inflow of Bitcoin spot ETF was as high as US$30.384 billion, which is far from the two.

As for the reason, Ethereum is already at a disadvantage compared to Bitcoin due to its value firmness and positioning differences, and the core staking function was rejected and restricted by the SEC, which further diluted investors' enthusiasm. To explain it in terms of cost, if investors directly hold ETH, they can obtain a staking income of nearly 3.5%, but if they hold institutional ETFs, not only can they not obtain this risk-free income, but they also have to pay additional management fees ranging from 0.15 to 2.5% to the issuer.

However, with the change of supervision, Ethereum spot ETF may not be without staking. After all, the attitude of the SEC, which had previously firmly rejected staking, has changed, and there are precedents in Europe. Recently, European ETP issuer 21Shares AG announced that it would add a staking function to its Ethereum core ETP product.

Of course, although ETFs are good, the actual inflow of funds remains to be examined. Even Ethereum has limited appeal to traditional capital, and Grayscale's Solana Trust has a total asset of only $70 million. The investment purchasing power of altcoins does not seem as optimistic as imagined. Affected by this, Robert Mitchnik, head of BlackRock's digital asset department, once mentioned that the company is not very interested in other crypto products besides Bitcoin and Ethereum.

But no matter how the subsequent approval progresses, the hype around altcoin ETFs has already begun. For the altcoin market that has been sick for a long time, this shot in the arm is too timely.