Bitcoin pullback, alts usher in a new wave of excitement

Recently, the cryptocurrency market has shown interesting changes. Although Bitcoin has experienced a pullback, Ethereum has reversed its downward trend and broken through the $3600 mark. Meanwhile, multiple sectors such as Defi and Layer2 have seen widespread gains, and the altcoin market seems to be revitalizing. However, not long ago, the market conditions were quite different. At that time, Bitcoin was close to the $100,000 high, while altcoins were in a state of lethargy, and the market was filled with despair.

In this case, Wall Street began to set its sights on altcoin ETFs, injecting a bit of vitality into the long-silent altcoin market.

A week ago, Bitcoin broke through $99,000, becoming the focus of major media. However, the typically active crypto community has rarely remained silent. In this institution-led bull market, most market participants have not benefited. On the contrary, the alts they hold are constantly being "sucked dry" by Bitcoin, showing a downward trend. This stands in stark contrast to the grand bull market promotions, leaving many investors with an indescribable bitterness.

As a recognized mainstream coin, Ethereum's performance has not been satisfactory. In terms of price trends, the relative increase of ETH is far less than that of Bitcoin. The exchange rate between ETH and BTC has been continuously declining throughout the year, from 0.053 all the way down to a low of 0.032, only recently starting to rebound. If even Ethereum is in such a situation, one can imagine the plight of other coins.

However, the altcoin market seems to be rejuvenating recently. Coins like SOL, XRP, LTC, and Link have taken the lead, with Solana's decentralized exchange daily trading volume surpassing $6 billion, and XRP once soaring to $1.63. This morning, Ethereum surged past $3,600, driving a broad rally in the altcoin sector, with the Defi sector seeing a 24-hour increase of as much as 8.47%.

Analyzing the reasons for the rise of alts, in addition to the positive sentiment brought by the bull market, the role of Wall Street cannot be overlooked. ETFs have become the most direct manifestation of this trend.

Tracing back to the starting point of this bull market, the launch of 11 Bitcoin spot ETFs ignited a market craze. The participation of several Wall Street giants has accelerated the mainstream adoption of Bitcoin, while also significantly lowering the barriers for market participants to engage in crypto investments. At that time, Bitcoin and Ethereum spot ETFs were approved one after another, and the market began to speculate on the next token that might attract Wall Street's attention. Considering market capitalization and capital factors, Solana was once one of the most highly regarded coins.

On June 27, a major asset management giant was the first to submit an S-1 form application for the Solana Trust to the SEC. Soon after, another company followed with a similar application. On July 8, the Chicago Board Options Exchange officially submitted a 19b-4 filing for the Solana ETFs of these two companies, bringing this wave of SOL ETF hype to a climax.

However, the SEC's tough stance quickly cooled off alts ETFs. In August, news emerged that the CBOE had removed the 19b-4 applications for two potential Solana ETFs from the "Pending Rule Changes" page on its website, with analysts bluntly stating that "approval is hopeless."

But now, the market situation has changed dramatically. On November 22, a document from a certain exchange indicated that the exchange proposed to list and trade four Solana-related ETFs on its platform. These ETFs are initiated by different companies and are classified as "commodity-based trust fund shares". If the SEC officially accepts the application, the final approval deadline is expected to be in early August 2025.

Not only Solana, but more ETFs are also in preparation. In the past month, a crypto investment firm has submitted spot ETF applications for three coins: XRP, Litecoin, and HBAR to the SEC. According to an ETF expert, at least one issuer is currently attempting to apply for an ETF for ADA (Cardano) or AVAX (Avalanche).

The emergence of these altcoin ETFs has sparked widespread discussion, and the influx of funds from afar has further ignited the market. Is the wild west era of crypto ETFs really about to arrive?

From an objective perspective, reviewing the previous approval process for Bitcoin and Ethereum, the approval of cryptocurrency spot ETFs generally needs to meet two implicit requirements: first, it must not be explicitly defined as a security by the Securities and Exchange Commission; second, there must be leading indicators proving market stability and non-manipulability, with a typical feature being that the token can be traded on the Chicago Mercantile Exchange (CME) in the United States, that is, it must first be listed on the futures market. According to this standard, aside from Bitcoin and Ethereum, there seem to be no other tokens in the crypto market that meet the criteria. The approval of more centralized currencies is even more challenging, especially for SOL, which not only has a higher degree of centralization but was also explicitly listed as a security in the regulatory agency's accusations against a certain trading platform.

Nevertheless, the market remains optimistic about the ETF approvals for SOL and XRP. Bloomberg ETF analyst James Seyffart believes that the decision timeline for the ETFs of SOL, XRP, LTC, and HBAR may be extended to the end of 2025, and the SEC may approve Solana-related ETFs within two years. Another ETF expert, Nate Geraci, is even more optimistic, stating that the Solana ETF is likely to be approved before the end of next year.

This optimism is naturally based on certain grounds, with the core factor pointing to the upcoming new government. The new government's commitment to cryptocurrency is actively being fulfilled, and the changes in the internal and external regulatory environment have given the cryptocurrency industry a stronger sense of confidence.

From the perspective of internal industry regulation, the main regulatory bodies for cryptocurrencies will undergo significant changes. The current chairman will resign on January 20, 2025, the day the new government officially takes office, marking the end of tight regulation in recent years. According to statistics, during his tenure, law enforcement actions were taken against multiple crypto-related entities, completing thousands of enforcement cases and recovering approximately $21 billion in fines, making him a well-known opponent of crypto in the industry.

Although the next chairman has not yet been determined, there are reports that former commissioner Paul Atkins may take over. Amid the intensifying competition for cryptocurrency securities, there are also rumors that the new government hopes to expand the powers of the Commodity Futures Trading Commission (CFTC) to strengthen its regulatory authority over the digital asset sector. If this initiative is realized, the likelihood of crypto assets being classified as securities may decrease.

From a broader external environment perspective, the new government can be described as a gathering place for cryptocurrency players. Among all the cabinet minister candidates, in addition to some well-known names in the market, there are several members who are crypto supporters, some of whom even actually hold cryptocurrencies. For example, a certain candidate not only holds hundreds of millions of Bitcoin but also has a company that has provided custodial services for a stablecoin for many years.

It is evident that the composition of the current government is drastically different from before. With most of the upper structure being supporters, the regulation of cryptocurrencies will inevitably show a trend of leniency. If a comprehensive regulatory framework for crypto assets can be established during the current government's term, the subsequent regulatory direction for the industry will also become clearer.

Beyond regulation, government-related enterprises have already targeted business opportunities. Recently, there have been frequent actions aimed at broadening the landscape of the crypto industry through investment and financing. Reports indicate that a certain media technology company is in talks with the Intercontinental Exchange (ICE) to acquire a cryptocurrency exchange. Additionally, the company has submitted an application for a cryptocurrency payment service called Truth Fi, planning to enter the crypto payment sector. These corporate movements reflect a positive attitude from the higher-ups towards cryptocurrencies.

It is precisely based on the above factors that the market has rekindled hopes for altcoin ETFs. With the changes in the regulatory authorities, the discussions around the securities of altcoins are expected to cease, laying a preliminary foundation for the realization of ETFs.

On the other hand, even though the prospects for altcoin ETFs are hard to predict, Wall Street is reluctant to give up this massive market of over $30 trillion. Traditional institutions are building new investment products and derivative tools around crypto assets to facilitate investors in incorporating crypto assets into their portfolios.

Sui Chung, the operator of a crypto index provider, stated that mainstream investors will establish direct ordinary exposure through spot Bitcoin ETFs and will also customize exposure to the asset class through additional products. Among these, the most popular products include those involving commodity futures linked to cryptocurrencies that earn yields, as well as products that provide downside protection through options. Currently, the company is planning to launch Nasdaq Bitcoin Index options.

John Davi, the Chief Investment Officer of Astoria Portfolio Advisors, also mentioned that he is currently considering increasing Bitcoin exposure in the ETF model portfolio he manages.

Overall, although the current wave of altcoin ETFs faces difficulties in realization under the existing regulatory context, from a long-term perspective, as regulations loosen and investor interest increases, institutions will objectively research crypto assets due to considerations of traffic acquisition and market competition. On the product side, institutions will no longer be limited to Bitcoin and Ethereum, the productization and standardization of crypto assets will be further strengthened, and derivatives may experience a boom, aiming to remove barriers for investors to enter the market. It is foreseeable that investors will have more ways to invest in products related to cryptocurrencies.

In addition to the new products that have not yet been launched, existing ETFs will also benefit from this trend. Taking the Ethereum spot ETF as an example, its capital inflow has long been weaker than that of Bitcoin. As of November 27, the net inflow of the Ethereum spot ETF was approximately $240 million, while the net inflow of the Bitcoin spot ETF reached $30.384 billion, showing a significant gap between the two.

There are multiple reasons for this difference. Ethereum already has disadvantages compared to Bitcoin due to differences in value stability and positioning, and the core staking function being restricted by regulations has further weakened investor enthusiasm. From a cost perspective, if investors hold ETH directly, they can receive nearly 3.5% staking rewards, but if they hold institutional ETFs, they not only cannot obtain this risk-free return but also have to pay an additional management fee ranging from 0.15% to 2.5% to the issuer.

However, with the changes in regulation, the Ethereum spot ETF may not be unrelated to the staking function. After all, the previous firm rejection of staking by regulators has changed, and there are already precedents in Europe. Recently, a European ETP issuer announced the addition of staking functionality to its Ethereum core ETP product.

Of course, while the outlook for ETFs is bright, the actual inflow of funds remains to be seen. Even Ethereum's appeal to traditional capital is quite limited, with the total assets of a certain institution's Solana Trust being only $70 million. The purchasing power for alts seems to be less optimistic than expected. As a result, the head of the digital asset department of a large asset management company has stated that the company has little interest in other crypto products besides Bitcoin and Ethereum.

Regardless of how the subsequent approvals progress, the hype surrounding the altcoin ETF has already begun. For the long-dormant altcoin market, this is undoubtedly a timely shot in the arm.