While the launch of Altcoin ETFs is drawing closer, experts predict that interest could remain subdued
Even with the potential launch of exchange-traded funds (ETFs) that hold alternative cryptocurrencies, analysts are predicting that investor interest may be limited in the US market. Several asset managers have filed applications to launch ETFs featuring altcoins like Solana (SOL), XRP, and Litecoin (LTC), with many expected to gain regulatory approval by 2025.
However, experts anticipate that demand for these altcoin ETFs will be significantly lower compared to Bitcoin (BTC) and Ether (ETH), with retail investors likely making up most of the demand.
Katalin Tischhauser, Head of Research at Sygnum, noted that while there is buzz surrounding the launch of these ETFs, the sources of substantial demand remain unclear. She estimates that altcoin ETFs may see inflows between several hundred million to $1 billion, which pales in comparison to the over $100 billion held by US Bitcoin ETFs. Bryan Armour, Director of Passive Strategies Research at Morningstar, also emphasized that, unlike Bitcoin, there is no equivalent wave of institutional investors awaiting an ETF structure to gain exposure to these altcoins.
Altcoin ETFs in line for US regulatory approval. Source: Bloomberg Intelligence
Early adopters
According to Tischhauser, investors with the knowledge to recognize altcoins like Solana (SOL) typically already own them through on-chain holdings or via spot exchanges. “If people are genuinely interested in Solana or Dogecoin, they’ve likely already purchased them,” added Bryan Armour.
At the same time, institutional investors and wealth managers may be more inclined to invest in altcoins if they are included in a broader cryptocurrency index fund. Tischhauser noted that these investors prefer a more passive investment strategy that tracks the overall market.
On February 20, Franklin Templeton launched an ETF that holds both spot Bitcoin and Ether, marking the second cryptocurrency index ETF in the market. This follows the release of the Nasdaq Crypto Index US ETF (NCIQ) by asset manager Hashdex on February 14. While both funds currently only hold Bitcoin and Ether, there are plans to expand to other cryptocurrencies pending regulatory approval.
Comparing asset manager Grayscale’s net assets pre-ETF launch across different cryptocurrencies to gauge ETF demand. Source: Sygnum Bank
ETF benefits
Asset managers preparing to launch altcoin ETFs remain optimistic, pointing to research from JPMorgan that predicts cumulative demand for these funds could surpass $14 billion. Federico Brokate, head of 21Shares’ US operations, believes that even crypto-native investors can benefit from holding altcoins in an ETF format. “The real advantage lies in the core benefits of an ETF, such as institutional pricing and custody,” Brokate explained. 21Shares is awaiting approval for several altcoin ETFs, including those featuring Solana (SOL), XRP, and Polkadot (DOT). Additionally, the convenience of having all investments in one place with a single click is an attractive feature for investors.
Brokate also noted that professional wealth managers, particularly independent registered investment advisors (RIAs), are showing growing interest in adding altcoin ETF allocations to differentiate themselves in a competitive market. Independent RIAs were early adopters of Bitcoin and Ether ETFs, which received US regulatory approval in 2024.
According to Matt Horne, Fidelity Investments’ head of digital asset strategists, there is a clear “adoption spectrum” when it comes to new investment products like crypto ETFs. While some clients were quick to embrace Bitcoin, others are expected to gradually adopt these new investment options over time.
