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Last year brought some seminal moments regarding the intersection of the cryptocurrency universe and the exchange traded funds industry.
The ball got rolling in January 2024 when a batch of spot bitcoin ETFs came to mark, some of which now rank as the most successful ETF launches of all-time. Six months later, the market welcomed spot ETFs linked to ethereum – the second-largest digital currency by market value. As of late Jan. 31, the combined market values of bitcoin and ethereum was north of $2.4 trillion. Alone, bitcoin is worth more than Saudi Arabian oil giant Saudi Aramco.
In other words, bitcoin and ethereum are credible. Same goes for some other members of the cryptocurrency space, but in a universe where the population is fast-approaching 11,000, the dubious and the speculative far outweigh the credible and legitimate. For example, Fartcoin and Pudgy Penguins are the 96th- and 98th-largest digital currencies, respectively. Those are highly speculative assets with no utility beyond being trading vehicles.
Conversely, the 96th- and 98th-largest members of the S&P 500 are Marsh & McLennan (MMC) and Lam Research (LRX) – two credible companies with legitimate business models. Questions about the viability of various cryptocurrencies will linger, particularly as memecoin mania ramps up, but the ETF industry remains undaunted.
Crypto ETFs May Be Going too Far
There’s merit in bitcoin and ethereum ETFs and the success of those products is seen as paving the way for more ETFs based on digital currencies. Filings are already out for ETFs based on litecoin, solana and XRP, each of which is among the larger by market value cryptocurrencies.
Regulators haven’t yet approved those products, but there’s optimism that will happen and with that in mind, issuers are pushing the bounds of the crypto/ETF union. Recently, some very credible issuers filed plans for memecoin ETFs, including leveraged fare. Memecoins have captured retail traders’ attention because these coins, which often trade in the tenths or hundreths of a cent, have the potential to notch massive short-term gains.
Of course, there are no guarantees of memecoin gains. Far from it and selecting the winners in a space that increases in population by the minute is a task unto itself. A recent memecoin linked to President Trump confirms as much.
“President Trump’s memecoin launched three days before he took office to much fanfare, exploding in value to $15 billion when announced,” notes Morningstar analyst Bryan Armour. “As of Monday (Jan. 27), it had fallen 65% off its highs. The Trump coin website includes a disclaimer that says it’s “not intended to be, or the subject of” an investment or security. Yet a Trump coin ETF was filed for within days of its inception.”
Advisors Looking for Crypto Clarity
It’s possible, perhaps highly probable that memecoin ETFs will gain traction among retail investors, but those products aren’t going to be part of advisors’ arsenals. Chances are the various custodial platforms will be strict when it comes to memecoin ETFs, assuming the products come to life.
Regardless of what comes of the next wave of crypto ETFs, one thing is clear: advisors and investors want more regulatory clarity regarding digital currencies and Trump wants to deliver on that.
“On Jan. 23, President Trump issued an executive order to ‘strengthen American leadership in digital financial technology,’” adds Armour. “ One of the order’s measures was for the SEC and other agencies to provide much-needed regulatory clarity on crypto. The order’s timelines are short, but the result should be clearer guidance for how advisors and institutions can comply with regulations while investing in crypto.”