Original article by: Token Dispatch, Prathik Desai
Original translation: Block unicorn
Preface
Last week, Paul Atkins was sworn in as the 34th Chairman of the U.S. Securities and Exchange Commission (SEC), inheriting the heaviest cryptocurrency-related workload in the SEC’s history: more than 70 cryptocurrency exchange-traded fund (ETF) applications awaiting review.
Just three days into his tenure, Atkins faced his first few major cryptocurrency decisions. He delayed rulings on multiple ETF proposals until June.
The delays are not unexpected. However, they highlight the difficult task facing the new cryptocurrency-friendly chairman.
Interestingly, as the altcoin ETF craze takes off, funds tracking the second-largest cryptocurrency — Ethereum — are losing money at an alarming rate.
Despite this, fund companies are still racing to apply for various ETFs. From mature altcoins like Solana and XRP to meme coins like Dog, Penguin, and even Trumpcoin, Atkins work faces many challenges.
This contrast raises an intriguing question: Given that Ethereum’s experience provides such a troubling precedent, why are altcoins still rushing to apply for ETFs?
ETF applications pile up
Asset managers have filed ETF applications for at least 15 cryptocurrencies other than bitcoin and ethereum.
Grayscale alone has applied for funds tracking Solana, Cardano, XRP, Dogecoin, Litecoin, and Avalanche. Bitwise is looking to get ETFs approved based on Dogecoin and Aptos, while Canary Capital has been particularly aggressive, submitting applications for Hedera, Penguin, Sui, and most recently, a staking TRX product that even includes yield generation capabilities.
First, a basic question: Why apply for an ETF?
Bloomberg ETF analyst Eric Balciunas recently posted: “ETF-ing your cryptocurrency is like a band adding its songs to all music streaming services. It doesn’t guarantee anyone will listen, but it gets your music in front of the vast majority of listeners.”
In simple terms, this means better accessibility for investors and wider adoption through fund houses.
The implications of this issue extend beyond the cryptocurrency space to the complexities of politics. And we are talking about complexities involving President Donald Trump.
Trump’s media and technology group recently announced plans to invest up to $250 million in cryptocurrency-related ETFs.
The Ethereum ETF Dilemma
The timing of these applications is particularly puzzling because they come at a time when Ethereum ETFs are experiencing a crisis of investor confidence.
Ethereum ETFs have seen outflows for seven consecutive weeks, totaling more than $1.1 billion, as of April 18. As of April 11, assets under management plummeted to $5.24 billion, a record low since these products were launched in July 2024.
The struggle stands in stark contrast to bitcoin ETFs, which saw inflows of nearly $1 billion each day on Thursday and Friday last week, helping bitcoin prices recover to $95,000 despite market volatility.
For altcoin investors hoping to get in on the action, the Ethereum ETF’s experience raises an unsettling question: If the second-largest cryptocurrency by market cap can’t sustain investor interest in an ETF wrapper, is there hope for less-established tokens?
Lessons from Ethereum
Beyond the numbers, the Ethereum ETF story raises some fundamental questions that altcoin ETF investors must seriously consider if they want to avoid the same fate.
The first is the fee structure, Grayscales ETHE is a typical example. When competitors such as BlackRock offer similar investment opportunities at one-tenth the price, its 2.5% annual fee is obviously unsustainable.
This fee differential creates a mathematical inevitability — over time, high-fee products will significantly underperform lower-fee products that track the same assets. This is critical for investors who plan to hold on to their holdings for many years.
The second is Ethereum’s increasingly complex value narrative. While Bitcoin benefits from its straightforward “digital gold” positioning, Ethereum’s value proposition covers a smart contract platform, a settlement layer for DeFi, an NFT market pillar, and a potential asset that generates income through staking—a feature that current Ethereum ETFs do not have.
This complexity creates a marketing challenge. When financial advisors can’t easily explain investment rationales to clients in a sentence or two, adoption suffers. Bitcoin’s simplicity easily wins this battle.
The third issue is the SEC’s cautious approach to staking. By prohibiting Ethereum ETFs from incorporating staking returns, the regulator has deprived them of a differentiating feature. This contrast became particularly stark when Canary Capital recently filed for a staking-based TRX ETF, suggesting that some issuers are already trying to overcome this limitation.
Why still betting on ETFs?
Despite the worrying performance of the Ethereum ETF, the rush of altcoin ETF applications has not slowed down. This apparent contradiction is driven by several powerful factors that outweigh the immediate concerns raised by Ethereum’s plight.
The most important catalyst was the “Atkins effect.” The appointment of Paul Atkins marked a dramatic shift from Gary Gensler’s tenure, which was viewed by the cryptocurrency industry as a period of regulatory hostility.
Atkins, with its reputation for supporting innovation and history of preferring market-driven solutions, offers issuers an unprecedented opportunity: a viable pathway to approval.
The data supports this optimism.
Bloomberg analysts estimate that assets like Solana, Litecoin, and XRP have a 75-90% probability of approval.
Atkins’ leadership effectively opened a regulatory window that asset managers are racing to take advantage of before it potentially closes.
Institutional demand provides another compelling reason for this ETF boom. According to a March 2025 report from Coinbase and EY-Parthenon, about 83% of institutional investors plan to increase their cryptocurrency allocations this year, with many aiming to put more than 5% of their assets under management into them.
Each altcoin offers a differentiated value proposition that may resonate better than Ethereum’s convoluted narrative.
Solana’s ultra-fast transactions and growing DeFi ecosystem provide a clear efficiency story. XRP’s focus on cross-border payments provides a concrete use case that is easier to explain to institutional investors. Hedera’s enterprise adoption gives it enterprise credibility that pure retail cryptocurrencies lack.
The growth potential of smaller cryptocurrencies also provides a compelling case for ETF issuers.
While Bitcoin and Ethereum may offer stability, their trillion-dollar market caps limit upside. If mid-cap altcoins gain mainstream adoption, they could deliver more significant returns, attracting growth-oriented investors who missed out on Bitcoin’s early gains.
Potential Market Impact
The most direct impact will be capital flows. JPMorgan analysts predict that the Solana ETF alone could attract $3-6 billion in the first year, and XRP could attract $4-8 billion. These capital flows could significantly affect token prices and market dynamics.
By comparison, the entire spot Ethereum ETF market currently holds approximately $5.27 billion in assets. If two or three major altcoin ETFs meet these projections, they could collectively surpass the Ethereum ETF in size within a few months of launch, creating a significant market recalibration.
However, there is also a risk of asset dilution when institutional capital is spread across multiple cryptocurrency ETFs.
This could spread the interests of institutional investors across multiple products. Such a surge could cause all altcoin ETFs to fail to reach a critical mass in terms of AUM, making them less attractive to institutional portfolios.
For retail investors, the impact is twofold. On the one hand, ETFs provide regulated, secure exposure to cryptocurrencies without the challenges of self-custody. On the other hand, the growing premium paid by ETF investors (through management fees and potential tracking errors) means that their investment returns may continue to be lower than those of direct holders of the underlying assets.
If a large number of altcoins are locked up in an ETF, it could reduce the circulating supply and potentially increase volatility in the underlying spot market.
Our View
As Ethereum struggles, the gold rush for altcoin ETFs reveals the power of narrative over performance. Everyone is obsessed with the irony that people are flocking to Ethereum, one of the pioneers, while it is losing money. What they need to focus on is not copying the Ethereum ETF, but capitalizing on its failure.
Smart issuers are already plotting a different route.
Canary Capital’s staking TRX application is the clearest evidence of this strategic shift. By introducing staking yields — something that the Ethereum ETF lacks — they are addressing the core structural flaw that has led to the massive outflow of Ethereum over the past few weeks.
The Atkins effect simply provides an opportunity.
The catalyst was the realization that Ethereum ETFs failed not because they were ETFs, but because they were not a substitute for native Ethereum. When investors compared ETHE’s 2.5% fee and zero-staking yield to simply holding Ethereum, the decision became mathematically obvious.
Analysts’ predictions for altcoin ETFs suggest that this is more than just blind optimism. These predictions suggest that specific altcoins with clearer value propositions can succeed if Ethereum’s complex narrative fails.
The ultimate winners may be small-cap coins with the most room to grow. Bitcoin and Ethereum’s trillion-dollar valuations limit their upside potential, but a well-targeted altcoin ETF could provide the growth multiples that institutional investors crave.
Rather than a cautionary tale, the Ethereum ETF could become a sacrificial precursor that paves the way for a more successful second wave. Today’s Ethereum ETF failures won’t prove that crypto ETFs don’t work; rather, they’ll be necessary market feedback to make the next generation work better.
