The debut of spot Bitcoin ( BTC 1.02%) exchange-traded funds (ETFs) in January 2024 stands out as one of Wall Street’s most notable launches in recent years. Altogether, these spot Bitcoin ETFs have attracted over $150 billion in investments.
Given this success, it’s no wonder that Wall Street is gearing up to introduce a wave of new crypto ETFs, especially now that the SEC has made the listing process more efficient. Some projections suggest that up to 100 new crypto ETFs could be introduced within the next six to twelve months.
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But which of these upcoming ETFs will actually be worth considering? To figure this out, it’s helpful to establish a few practical guidelines.
Pay attention to cryptocurrencies favored by institutional investors
Although there are thousands of cryptocurrencies available, only a select few attract significant interest from institutional investors. Bitcoin is the obvious leader, followed by Ethereum ( ETH 1.00%). Beyond Bitcoin and Ethereum, the options become much less appealing.
Looking at recent institutional fund flow data from CoinShares reveals where the big players are putting their money. So far this year, Bitcoin has seen $25 billion in inflows, Ethereum has received $12.5 billion, Solana ( SOL 1.40%) has attracted $1.5 billion, and XRP ( XRP 1.25%) has also seen $1.5 billion. Other coins have drawn some attention, but not on a meaningful scale.
With the arrival of new spot ETFs, my focus will be on Solana and XRP. Data from JPMorgan Chase ( JPM 0.77%) indicates that Solana could see up to $6 billion in inflows, while XRP might attract as much as $8 billion. Such consistent buying could drive their prices higher. For other cryptocurrencies, however, the lack of new investment may mean prices remain stagnant.
Prioritize spot crypto ETFs
The growing number of crypto ETF products can be confusing. Some funds claim to provide "spot exposure" to crypto assets, but they aren’t true "spot" ETFs. Instead, they might use synthetic strategies or complex structures to comply with U.S. regulations.
Consider the Rex-Osprey XRP ETF ( XRPR -1.65%) as an example. It markets itself as "the first U.S.-listed ETF offering exposure to spot XRP." This could lead investors to believe they are purchasing a spot XRP ETF. However, Rex-Osprey makes it clear: "Investing in XRPR is not equivalent to investing directly in XRP."
The fund’s prospectus explains: "The Fund, under normal market conditions, invests at least 80% of its net assets (plus any borrowings for investment purposes) in the Reference Asset and other assets that provide exposure to the Reference Asset."
In short, the fund is not fully invested in XRP, and even the portion that is may not involve direct spot purchases. The ETF has flexibility to invest in various assets related to XRP, but not necessarily XRP itself.
By comparison, spot Bitcoin ETFs are entirely invested in Bitcoin, purchasing it directly on the spot market. This means investors receive actual Bitcoin exposure, rather than a synthetic version. This is a key reason why spot Bitcoin ETFs have been such strong performers.
Exercise caution with these ETFs
It’s very likely that many of the new crypto ETFs will come with a range of features and add-ons. Some may offer leverage, while others might provide creative ways to access financial products not yet approved by U.S. regulators.
It’s best to steer clear of these. Such features often come with high fees and can tempt investors away from a disciplined, long-term investment approach.
There’s also speculation that popular meme coins like Dogecoin ( DOGE 2.32%) and Shiba Inu ( SHIB 1.89%) could soon have their own spot ETFs. These meme coins are already extremely volatile and speculative, and spot ETFs won’t change that risk profile. Therefore, it’s wise to avoid any crypto ETFs centered on meme coins.
Ultimately, the introduction of new crypto ETFs may not live up to all the hype. I’m interested in the upcoming spot ETFs for XRP and Solana, but I’ll likely skip the rest.
