Exchange-traded funds (ETFs) holding alternative cryptocurrencies may not see much uptake among investors even if they launch in the US this year, investment analysts told Cointelegraph.
Asset managers have filed upward of a dozen applications to launch US ETFs holding altcoins, including Solana (SOL), XRP (XRP), Litecoin (LTC) and more. Analysts expect many to obtain US regulatory approval in 2025.
However, initial demand for altcoin ETFs will be weaker than for core cryptocurrencies such as Bitcoin (BTC) and Ether (ETH) and primarily limited to retail investors, according to Katalin Tischhauser, Sygnum’s research head.
“[T]here is all this frothy excitement in the market about these ETFs coming, and no one can point to where substantial demand is going to come from,” Tischhauser told Cointelegraph.
Tischhauser estimates altcoin ETFs to see cumulative inflows of several hundred million to $1 billion, far lower than the more than $100 billion in net assets held by US Bitcoin ETFs.
“For bitcoin, some institutional investors and advisors were waiting for an ETF to get access to it,” Bryan Armour, director of passive strategies research at Morningstar, told Cointelegraph, adding, “I don’t expect anything close to the same magnitude of investors awaiting the ETF structure before investing in these cryptocurrencies.”
Altcoin ETFs in line for US regulatory approval. Source: Bloomberg Intelligence
Early adopters
Investors with enough crypto savvy to know about altcoins like SOL typically already hold spot cryptocurrencies onchain or through spot exchanges, Tischhauser said.
“If people are keenly interested in Solana or Dogecoin, they would have bought it by now,” Armour said.
Meanwhile, wealth managers and institutional investors are more likely to hold altcoins if they are included in an index fund that passively tracks the broader crypto market, Tischhauser said.
On Feb. 20, Franklin Templeton launched an ETF holding both spot Bitcoin and Ether. It was the second cryptocurrency index ETF to hit the market after asset manager Hashdex launched its Nasdaq Crypto Index US ETF (NCIQ) on Feb. 14.
The funds only hold BTC and ETH but may add additional cryptocurrencies pending regulatory approval.
Comparing asset manager Grayscale’s net assets pre-ETF launch across different cryptocurrencies to gauge ETF demand. Source: Sygnum BankETF benefits
Asset managers preparing to launch altcoin ETFs are more optimistic, citing research by JPMorgan that projects cumulative demand exceeding $14 billion for altcoin ETFs.
The head of 21Shares’ US operations, Federico Brokate, said that even crypto-native investors stand to benefit from holding altcoins in an ETF wrapper.
“The benefit really comes down to the core benefits of an ETF, which is institutional pricing and custody,” Brokate said. 21Shares is awaiting regulatory approval for several altcoin ETFs, including funds holding SOL, XRP and Polkadot (DOT).
Plus, “you get to invest in the place where you have the rest of your investment portfolio in one simple click.”
He added that professional wealth managers, particularly independent registered investment advisors (RIAs), are also showing interest in adding altcoin ETF allocations to differentiate from competitors.
Independent RIAs were among the first institutional adopters of BTC and ETH ETFs, which US regulators approved in 2024.
For new investment products, such as crypto ETFs, “there’s an ‘adoption spectrum’ for each client segment,” Matt Horne, Fidelity Investments’ head of digital asset strategists, told Cointelegraph.
“There were some early adopters of Bitcoin, and for others, there will be increased adoption over time.”
