Wall Street Sets Its Sights on the Altcoin Market

The cryptocurrency market is experiencing a notable rally, particularly the altcoin sector. Despite Bitcoin's recent pullback, Ethereum has surged past $3,600, reclaiming momentum alongside other sectors such as DeFi and Layer 2 solutions. This newfound vigor among altcoins is in stark contrast to the desolation that marked the market just days ago, when Bitcoin approached $100,000 while altcoins languished in despair.

Notably, Wall Street's interest has reignited the altcoin market, bolstered by unprecedented regulatory optimism. Following recent developments, altcoin ETFs have emerged as a focal point, remodeling a market that had long been dim. Just a week ago, Bitcoin's remarkable climb to nearly $99,000 made headlines, yet the crypto community remained eerily quiet. In this institutionally-driven bull market, a significant number of market participants have found themselves without the liquidity overflow that had been expected, instead witnessing their altcoin holdings slowly drained by Bitcoin.

For instance, Ethereum, widely recognized as a leading cryptocurrency, has seen its price action fall significantly behind Bitcoin's. At the beginning of the year, the ETH/BTC ratio was approximately 0.053 but has since plummeted to a low of 0.032 before beginning a modest rebound. If Ethereum's relative weakness is concerning, other altcoins have fared even worse.

However, a recent surge in altcoin action suggests that the market is waking up. Over the past weekend, cryptocurrencies such as Solana (SOL), Ripple (XRP), Litecoin (LTC), and Chainlink (Link) showed remarkable gains. Specifically, Solana's decentralized exchange (DEX) reported an average trading volume exceeding $6 billion, while XRP climbed to $1.63. Ethereum's recent breakout above $3,600 has further catalyzed a widespread rally throughout the altcoin sector, with DeFi projects seeing a 24-hour increase of 8.47%.

Advertisement

Several factors are attributed to this resurgence in altcoin prices. Besides the overall bullish sentiment stemming from the market's current bullish cycle, Wall Street's involvement has played a crucial role—the introduction of altcoin ETFs being the most tangible sign of this. As the recent bull run unfolded, the approval of 11 Bitcoin spot ETFs sparked a frenzy, where major financial institutions like BlackRock and Fidelity began adopting Bitcoin, which helped facilitate mainstream engagement with the asset class.

This evolution has naturally turned the market's attention to altcoins—particularly those that show potential for growth and institutional interest. Solana has emerged as a frontrunner, with significant public appeal among investors following its rise in value. On June 27, asset management firm VanEck submitted a registration form for its 'VanEck Solana Trust' to the SEC, with 21Shares quickly following with its own application. Soon after, the Cboe Exchange officially filed for both firms' Solana ETFs, marking the peak excitement of this SOL ETF hype.

However, this euphoria was short-lived as the SEC's stringent stance on cryptocurrency ETFs cooled altcoin enthusiasm. In August, it was reported that the CBOE had removed the pending Solana ETF applications from its website, with analysts concluding that their approval prospects were dim.

Fast forward to today, and the landscape has shifted dramatically. On November 22, the Cboe BZX Exchange announced its intention to list and trade four Solana-related ETFs from Bitwise, VanEck, 21Shares, and Canary Funds, categorized as “Commodity-based Trust Fund Shares.” If the SEC accepts these proposals, the deadline for approval is expected by early August 2025.

Moreover, the altcoin ETF landscape is not limited to just Solana. In the past month, Canary Capital has filed additional applications for XRP, Litecoin, and HBAR ETFs, while other firms are reportedly exploring ETFs for Cardano (ADA) and Avalanche (AVAX). This growing interest has sparked discussions across the crypto community and fueled speculation about the potential influx of capital into these products.

Looking ahead, the approval process for cryptocurrencies appears to hinge upon certain regulatory criteria. Historically, for a cryptocurrency to gain approval for a spot ETF, it needs to meet two critical requirements: it must not be explicitly classified as a security by the SEC, and it needs verifiable indicators demonstrating market stability and non-manipulability. The former typically involves the asset being traded on regulated futures markets such as the Chicago Mercantile Exchange (CME). Currently, aside from Bitcoin and Ethereum, few assets meet these stringent standards. Furthermore, the status of SOL is particularly precarious due to its centralization issues and previous designations as a security during SEC investigations into Binance.

Despite these hurdles, sentiment regarding potential approval for SOL and XRP ETFs remains optimistic. Bloomberg ETF analyst James Seyffart indicated that the approval process for SOL, XRP, LTC, and HBAR ETFs could push timelines to approval by late 2025, while Nate Geraci, CEO of ETF Store, suggested that Solana ETFs are likely to gain approval as soon as late next year.

The cryptocurrency market is witnessing a profound shift in regulatory attitudes, as the SEC prepares for a change in leadership. Current SEC Chairman Gary Gensler has announced plans to leave his post, which historically has been characterized by rigorous enforcement against numerous cryptocurrency entities, facilitating thousands of enforcement actions resulting in hefty fines. While a successor has yet to be announced, former SEC commissioner Paul Atkins is rumored to be in the running. With intense debates swirling around the classification of cryptocurrencies as securities, the government is also said to be considering expanding the authority of the Commodity Futures Trading Commission (CFTC) to oversee digital assets, potentially changing the landscape for cryptocurrency regulation.

In a broader context, the current administration features several key figures who openly support cryptocurrency, unlike previous governments that were more skeptical. With financial interests deeply entrenched in cryptocurrencies, this new government could pave the way for a more favorable regulatory environment. If a comprehensive regulatory framework for crypto assets is established during this administration, it may greatly clarify the landscape for future industry activity.

Given these factors, the market has reignited hopes around altcoin ETFs. With the impending departure of the current SEC chairman, expectations around altcoins’ classification as securities may wane, laying the groundwork for potential final approval. Meanwhile, Wall Street appears unwilling to abandon a market valued at over $30 trillion. Traditional finance institutions are actively constructing new investment products and derivatives designed to seamlessly integrate cryptocurrency assets into diversified portfolios.

Sui Chung of CF Benchmarks emphasizes that mainstream investors will likely establish direct exposure to Bitcoin through spot ETFs while also customizing exposure through additional products that link to cryptocurrencies, including futures and options. Astoria Portfolio Advisors CIO John Davi mentioned he is intensifying focus on incorporating Bitcoin exposure into his ETF model investment portfolio.

Overall, even though the current regulatory backdrop poses challenges for altcoin ETFs, the trend towards relaxed regulations promises a brighter outlook for the crypto market. In the long run, as regulations ease and investor interest swells, institutions will undoubtedly delve deeper into research on crypto assets. The diversification of product offerings will no longer be limited to Bitcoin and Ethereum, leading to further standardization and productization of altcoins. With new derivatives designed to lower entry barriers for investors, the market will see numerous avenues as cryptocurrencies evolve.

Existing ETFs, such as Ethereum’s spot ETF, will also likely benefit from these trends. Historically, Ethereum's spot ETFs have seen lower fund inflows compared to Bitcoin, a trend that has persisted until recently, where Bitcoin’s inflows have reached an astounding $30.38 billion, as compared to Ethereum’s mere $240 million. The disparity can be attributed to Ethereum’s considerable reliance on staking functionalities that are typically dismissed by the SEC and the asset’s more complex value proposition.

Nevertheless, with shifting regulatory attitudes, the prospect of integrating staking functionalities into Ethereum spot ETFs is tantalizing. Some precedents exist in Europe, where ETP issuers, like 21Shares AG, have recently announced plans to incorporate staking features into their Ethereum ETP products.

However, actual capital flows into these ETFs remain unclear. Interest in altcoins like Solana remains lukewarm as evidenced by low asset levels at major investment firms, indicating that enthusiasm for altcoin investment might not be as robust as many hope. The asset under Greyscale's Solana Trust stands at only $70 million, illustrating the challenges altcoins face in capturing market attention beyond established players like Bitcoin and Ethereum.

Regardless of future approval outcomes, the buzz around altcoin ETFs is palpable. The rejuvenation of a long-dormant altcoin market could not have come at a more opportune moment.