The possibility of another altcoin exchange-traded fund (ETF) in the United States hinges on political shifts after the forthcoming 2024 U.S. presidential election, despite the recent approval from the U.S. Securities and Exchange Commission (SEC) for fund managers to list spot Ether (ETH) ETFs on May 23. While SEC Chair Gary Gensler acknowledged that the launch of Ether ETFs will take time, discussions about the next crypto ETF are already underway, with Solana (SOL) emerging as a frontrunner.
Despite the excitement surrounding more crypto ETFs, Ophelia Snyder, co-founder and president of 21.co, expressed caution, stating that expectations for new altcoin ETFs should be tempered. However, the success of spot Bitcoin (BTC) and Ether ETFs has shown that institutional investors’ high demand for altcoin ETFs could drive ETF issuers to submit applications.
According to a report by CoinShares, hedge funds and wealth managers have notably increased their altcoin holdings, particularly in Solana. Snyder highlighted the significant interest in 21.co’s Solana exchange-traded product (ETP) on European exchanges, with nearly $990 million in assets under management.
The SEC has not signaled openness to approving ETFs for other cryptocurrencies in the future. The approval of spot Ether ETFs was already a challenging decision for the commission. The acceptance of an altcoin ETF could be even more challenging for the SEC, but various factors could potentially influence their stance.
While spot Bitcoin, Ether, and altcoin ETFs are available globally, U.S. regulators are more stringent. Foreign altcoin ETFs do not hold much sway with the SEC, as U.S. regulators tend to rely on domestic regulations. Bloomberg ETF analyst Eric Balchunas explained that the SEC follows a specific timeline for approving ETFs, suggesting that it could take several years for an altcoin ETF to be approved if the same process is followed.
One crucial aspect that allowed the SEC to assess market integrity was using data from the Chicago Mercantile Exchange (CME) to compare correlations with spot prices on exchanges like Coinbase and Kraken. The analysis included a 32-month sample period, requiring substantial data from the CME.
Looking ahead to the 2024 U.S. elections, the outcome could have a significant impact on the future of altcoin ETFs, with U.S. crypto regulation becoming a prominent political issue. Depending on the election results, the prospects for altcoin ETFs in the U.S. may vary drastically.
Aside from political developments, specific criteria must be met to secure ETF approval, including liquidity, decentralization, resistance to price manipulation, and classification from regulatory bodies. The question remains: Are altcoins prepared to meet these standards?
Concerns about price manipulation in altcoin markets persist due to their smaller market caps compared to Bitcoin and Ether. However, some experts believe that ETFs can mitigate these risks. While altcoin markets may lack liquidity, there are precedents for ETFs with lower liquidity levels, albeit with potential challenges.
The emergence of a Solana ETF is a possibility, given its market capitalization, but concerns about centralization and regulatory hurdles remain. Solana’s concentration of wealth among top holders raises decentralization issues that must be addressed before an ETF can be considered viable.
Overall, the future of altcoin ETFs in the U.S. is uncertain, with political changes, regulatory requirements, and market conditions all playing a role in determining the fate of these investment products.