Alts market warms up, ETF craze rises again

Recently, the cryptocurrency market has shown some interesting dynamics. Although Bitcoin has experienced a pullback, Ethereum has reversed the downward trend and broken through the $3600 mark. Various sectors such as Defi and Layer 2 have welcomed a broad rally, and the alts market seems to be experiencing a revival. This stands in stark contrast to the situation a few days ago when Bitcoin was close to $100,000, while the alts market was in a state of decline.

Against the backdrop of unprecedented regulatory benefits, Wall Street has turned its attention to alts ETF, injecting new vitality into the long-dormant altcoin market.

Looking back at the situation a week ago, Bitcoin continued to break through, reaching a high of $99,000, making headlines in major media. However, the usually active crypto community has surprisingly remained silent. In this round of institution-led bull market, most market participants have not enjoyed the dividends of liquidity overflow; instead, the alts they hold are constantly being drained by Bitcoin, showing a downward trend. This stands in stark contrast to the grand bull market promotions, leaving participants feeling quite helpless.

As a recognized mainstream coin, Ethereum's performance has also been less than satisfactory. Compared to Bitcoin, ETH's relative increase is far inferior to the latter. The exchange rate between ETH and BTC has continued to decrease throughout the year, dropping from 0.053 all the way down to a low of 0.032, before beginning to rebound recently. The performance of other coins has been even more disappointing.

However, the altcoin market seems to be starting to recover recently. Coins such as SoL, XRP, LTC, and Link began to rally last weekend. The daily trading volume of Solana's decentralized exchange exceeded $6 billion, and XRP once surged to $1.63. This morning, Ethereum rose strongly to break through $3600, driving a widespread rally in the altcoin sector, with the Defi sector seeing a 24-hour increase of 8.47%.

Analyzing the reasons for the rise of altcoins, in addition to the positive sentiment brought by the bull market, the role of Wall Street is also significant, and the ETF is the most direct manifestation.

Looking back at the beginning of this round of bull market, the launch of 11 Bitcoin spot ETFs ignited a market frenzy. The entry of several Wall Street giants has propelled the mainstreaming of Bitcoin and significantly lowered the barrier for market participation in crypto assets. At that time, Bitcoin and Ethereum spot ETFs were successively approved, and the market began to speculate on the next token that could attract Wall Street's attention. Based on market capitalization and capital considerations, Solana was once the most favored coin.

In June of this year, several asset management companies began submitting applications for Solana ETFs to the U.S. Securities and Exchange Commission (SEC). In July, the Chicago Board Options Exchange submitted formal documents for these ETFs, escalating the speculation around SOL ETFs. However, the SEC's tough stance quickly cooled the altcoin ETF enthusiasm. In August, market rumors emerged that the related applications had been withdrawn, with analysts believing that approval was unlikely.

But now, the market environment has changed significantly. On November 22, a certain exchange proposed to list and trade four Solana-related ETFs on its platform. These ETFs are initiated by different institutions and classified as "commodity-based trust fund shares." If the SEC officially accepts the application, the final approval deadline is expected to be in early August 2025.

Not only Solana, but more ETF applications are on the way. In the past month, a certain crypto investment company submitted spot ETF applications for three coins: XRP, Litecoin, and HBAR to the SEC. According to industry insiders, 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, and the influx of funds from afar has further heated up the market. Is the wild west era of crypto ETFs really about to arrive?

From an objective perspective, reviewing the previous approval processes for Bitcoin and Ethereum, cryptocurrencies approved for spot ETFs basically need to meet two major implicit requirements: first, they must not be explicitly defined as securities by the SEC; second, there must be leading indicators proving market stability and non-manipulability, with the typical characteristic being that the tokens can be traded on the Chicago Mercantile Exchange in the United States. By this standard, apart from Bitcoin and Ethereum, there seem to be no other coins in the crypto market that fully meet the conditions. The approval for more centralized currencies is even more difficult, especially for SOL, which is not only highly centralized 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. An ETF analyst believes that the decision timeline for these ETFs may be extended to the end of 2025, and the SEC may approve Solana-related ETFs within two years. Another industry insider is even more optimistic, predicting that the Solana ETF is highly likely to be approved before the end of next year.

This optimism is backed by information, with key factors pointing to the incoming president. The new government's commitment to cryptocurrencies is being actively fulfilled, and changes in the internal and external regulatory environment have provided the cryptocurrency industry with stronger confidence.

From the perspective of industry regulation, the main regulatory body for cryptocurrencies, the SEC, is about to undergo personnel changes. The current SEC chairman announced that he will resign on January 20, 2025, the day the new president officially takes office, which has put a pause on the SEC's stringent regulations in recent years. During his tenure, the SEC has taken enforcement actions against multiple crypto-related entities, completing thousands of enforcement cases in total and recovering approximately $21 billion in fines.

Although the next SEC chairman candidate has not yet been determined, there are reports that a former SEC commissioner may take over this position. Amid the escalating battle over whether cryptocurrencies are securities or commodities, there are also rumors 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 space. If this move is realized, the recognition of the securities nature of crypto assets may be weakened.

From a broader external perspective, the new government is not short of cryptocurrency supporters. Several cabinet members are supporters of crypto, with some even holding cryptocurrencies themselves. This suggests that the new government's regulation of cryptocurrencies may show a trend towards leniency. If a complete regulatory framework for crypto assets can be established during this government's term, the future direction of industry regulation will also become clearer.

In addition to regulatory aspects, enterprises under the new government have already set their sights on opportunities in the crypto market. According to reports, a certain media technology company is in talks with the Intercontinental Exchange regarding the acquisition of a cryptocurrency exchange. Recently, the company also submitted an application for a cryptocurrency payment service named Truth Fi, planning to enter the crypto payment sector. These movements indirectly reflect the new government's positive attitude towards cryptocurrencies.

It is precisely based on the above factors that the market has rekindled hopes for alts ETF. With the changes in the SEC leadership, the securities disputes surrounding alts are expected to ease, laying a preliminary foundation for the realization of the ETF.

Even though the prospects of altcoin ETFs remain unclear, Wall Street is not willing to give up on this massive market worth over $30 trillion. Traditional financial institutions are building new investment products and derivative tools around crypto assets so that investors can incorporate crypto assets into their portfolios.

The head of a certain crypto index provider stated that mainstream investors will establish direct exposure through spot Bitcoin ETFs, while also customizing their exposure to the asset class via additional products. The most popular products currently include commodity futures products linked to cryptocurrencies that earn yields, as well as products that provide downside protection through options.

The chief investment officer of a certain investment advisory firm also mentioned that they are considering increasing Bitcoin exposure in their managed ETF model portfolio.

Overall, although there are still challenges in the implementation of altcoin ETFs under the current regulatory environment, in the long run, as regulations loosen and investor interest increases, it will be 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 clearing obstacles for investors to enter the market. It is foreseeable that in the future, investors will have more ways to invest in cryptocurrency-related products.

In addition to new products, existing ETFs will also benefit from this trend. Taking the Ethereum spot ETF as an example, its inflows have long been weaker than those of the Bitcoin ETF. As of November 27, the net inflow of the Ethereum spot ETF was approximately $240 million, while the net inflow of the Bitcoin spot ETF reached $30.384 billion, showing a significant gap between the two.

There are multiple reasons for this gap. Ethereum differs from Bitcoin in terms of value stability and positioning, and its core staking function cannot be implemented in ETFs due to regulatory restrictions, which further dampens investor enthusiasm. From a cost perspective, directly holding ETH can yield about 3.5% in staking rewards, while holding institutional ETFs not only cannot obtain this risk-free return but also incurs management fees ranging from 0.15% to 2.5%.

However, with the changes in the regulatory environment, the Ethereum spot ETF may potentially incorporate staking features in the future. In fact, there are already ETF issuers in Europe that have added staking functionality to their Ethereum core ETP products.

However, despite the promising outlook for ETFs, actual capital inflows remain to be seen. Even Ethereum's appeal to traditional capital is relatively limited, with the total assets of a certain institution's Solana Trust being only $70 million, indicating that the investment purchasing power for alts may not be as expected. As a result, some large asset management institutions have expressed limited interest in crypto products other than Bitcoin and Ethereum.

Regardless of how the future ETF approvals progress, the speculation around altcoin ETFs has already begun, which is undoubtedly a boost for the long-depressed altcoin market.