While asset managers are still optimistic, experts like Katalin Tischhauser and Bryan Armour argue that institutional investors may prefer broader crypto index funds over standalone altcoin ETFs. Despite this, firms like Grayscale and 21Shares are actively seeking approval for ETFs tied to Polkadot, Solana, and other altcoins. Meanwhile, market sentiment is currently very cautious, and CryptoQuant’s Ki Young Ju even suggested that an "altcoin season" as most people know it is unlikely to take place in 2025.
Altcoin ETFs Face Uncertain Demand
The introduction of exchange-traded funds (ETFs) holding alternative cryptos in the United States may not attract a lot of investor interest, despite asset managers filing multiple applications. While analysts expect regulatory approval for some of these ETFs in 2025, demand is expected to be much lower than that for Bitcoin and Ethereum ETFs.
A crypto ETF is a regulated investment vehicle that allows investors to gain exposure to cryptocurrencies without directly holding the underlying assets. These ETFs trade on traditional stock exchanges and track the price of a specific cryptocurrency or a basket of digital assets.
Investment analysts suggest that institutional investors, who were previously hesitant to invest in Bitcoin and Ethereum before the ETF structure was introduced, are unlikely to show the same level of interest in altcoin ETFs. Katalin Tischhauser, head of research at Sygnum, pointed out that the market excitement surrounding altcoin ETFs does not seem to be backed by clear evidence of strong demand. She estimates that inflows for altcoin ETFs may range from several hundred million to $1 billion, which is a stark contrast to the over $100 billion held by US Bitcoin ETFs.
Bryan Armour, the director of passive strategies research at Morningstar agrees with this, and stated that many investors who are familiar with altcoins like Solana and Dogecoin already hold these assets through spot exchanges or on-chain. He believes that institutional investors are more likely to gain exposure to altcoins through index funds that passively track the broader cryptocurrency market rather than through standalone altcoin ETFs.
Recent developments in the crypto ETF space suggest a preference for more established assets. Franklin Templeton and Hashdex both launched crypto index ETFs that currently hold only Bitcoin and Ethereum, though they may expand to include other assets pending regulatory approval.
Despite the skepticism from analysts, asset managers preparing to launch altcoin ETFs are still very optimistic. Research by JPMorgan suggests that cumulative demand for these products could exceed $14 billion. Federico Brokate, head of US operations at 21Shares, argues that even experienced crypto investors stand to benefit from holding altcoins in an ETF wrapper due to institutional pricing and secure custody. He also shared that independent registered investment advisors (RIAs) are increasingly considering altcoin ETFs as a way to differentiate their portfolios.
The adoption of crypto ETFs follows a pattern, according to Matt Horne, head of digital asset strategists at Fidelity Investments. Just as Bitcoin ETFs saw early adopters before gaining wider acceptance, altcoin ETFs may experience a gradual adoption process over time. While the initial demand for these funds is expected to be quite limited, the market could evolve as more investors recognize the potential benefits of holding altcoins in an ETF structure.
Grayscale Seeks Approval for Polkadot ETF
One of the latest developments surrounding altcoin ETFs happened when Nasdaq recently filed a request to list a Grayscale ETF that will hold Polkadot’s native token, DOT. If approved, the Grayscale Polkadot Trust will join the asset manager’s growing portfolio of publicly traded crypto funds. This filing is one of many currently under review by the SEC as exchanges and asset managers seek approval for ETFs tied to altcoins.
Grayscale’s DOT ETF application (Source: Nasdaq)
Grayscale already lists two spot Bitcoin ETFs and a spot Ethereum ETF, and is looking for regulatory approval for ETFs holding Solana, Litecoin, XRP, Dogecoin, and Cardano. The firm also wants to launch an ETF that holds a diversified basket of cryptocurrencies.
Beyond ETFs, Grayscale manages several single-asset crypto funds that are not publicly traded. Earlier this year, it introduced investment funds for the Pyth Network’s native token and Dogecoin. In late 2023, the company launched investment funds for Lido and Optimism’s governance tokens.
The push for crypto ETFs has intensified, and multiple asset managers are seeking approval to list funds tied to a range of altcoins. Among them, 21Shares has also submitted an application for a Polkadot ETF. Other proposed funds include ETFs for Hedera and Official Trump. In addition to new listings, issuers are awaiting regulatory decisions on proposed changes to existing ETFs, like allowances for staking, options trading, and in-kind redemptions.
The SEC’s stance on cryptocurrency regulation shifted a lot in recent months, particularly after Donald Trump’s re-election. Under the Biden administration, the SEC took aggressive action against crypto firms by initiating more than 100 lawsuits related to securities law violations. While spot Bitcoin and Ethereum ETFs received approval in 2024, ETFs tied to other cryptocurrencies faced resistance.
However, analysts at Bloomberg Intelligence estimate that the likelihood of an XRP ETF gaining approval in the US is about 65%, with Litecoin and Solana ETFs having even stronger odds at 90% and 70%, respectively.
Altcoin Season Unlikely in 2025…
In addition to reduced interest in altcoin ETFs, the widespread rally known as "altcoin season" may not materialize in 2025. However, cryptocurrencies with strong fundamentals and revenue-generating models could still outperform the broader market, according to CryptoQuant CEO Ki Young Ju. He believes that most altcoins are unlikely to survive the next market cycle, and stated that “the era of everything pumping is over.” However, projects with potential ETF approvals, consistent revenue streams, and sustained investor interest may stand out.
Ju’s assessment was made as nearly a quarter of the 200 largest cryptocurrencies hit their lowest levels in over a year, which raised some concerns about a potential market capitulation. This decline also led to speculation that the market could be approaching a bottom before the next upward trend.
Juan Pellicer, a senior research analyst at IntoTheBlock, pointed to the recent market correction as a possible sign of capitulation. The drop in total crypto market cap to $2.93 trillion and massive liquidations, particularly in assets like Solana, indicate that overleveraged positions are being flushed out. In financial markets, capitulation happens when investors panic-sell their holdings, leading to a steep decline in prices before the market stabilizes and begins to recover.
While some assets may struggle in the current environment, Ju suggests that investors should focus more on cryptocurrencies with clear utility and strong financial models rather than hoping for a broad-based altcoin rally. Overall, it seems like the projects that can sustain long-term interest and institutional backing may be the ones that thrive.
