Bitcoin and Ether may just be the beginning for spot-price crypto ETFs, with the SEC on Wednesday disclosing that it is reviewing applications for products that hold Litecoin and XRP.
In fact, the Securities and Exchange Commission could prove to be much more crypto-friendly than it was during the Biden administration. Already, interim SEC Chairman Mark Uyeda directed the start of a crypto task force led by Commissioner Hester Peirce, who carries the nickname “crypto mom,” in part for her objections to how the agency has handled enforcement in that area.
The SEC’s notices this week reflect applications by CoinShares for Litecoin and XRP ETFs as well as one from WisdomTree for an XRP ETF. Those products would trade on the Nasdaq and Cboe (in WisdomTree's case), and the exchanges filed with SEC for proposed rule changes that would allow them to list the ETFs. The requests followed others in recent days, including proposed rule changes at different exchanges to allow listing and trading of other ETFs that would hold or track XRP, Litecoin, Solana, and yes, even Dogecoin.
But just because investors could get access to various crypto assets in ETF form, it’s still very much a bitcoin world.
“There is not a lot of investor demand for these specific products, but it would be beneficial for creating a larger, more cohesive crypto ETF ecosystem for investors to diversify their crypto exposure,” said Roxanna Islam, head of sector and industry research at VettaFi, in an email. “While XRP is currently the third-largest cryptocurrency by market cap, it has less than 5 percent of crypto market share. Litecoin is the 12th largest, with only 0.3 percent market share. Both are significantly smaller than Ether, which has failed to gather the same sort of interest as bitcoin during their respective spot ETF launches.”
And even then, bitcoin, while wildly successful for a handful of ETF providers, is still part of a niche category for most investors. Everyone knows about bitcoin, and there are many enthusiasts, but the average allocation to it is quite small.
“I have seen investors move from zero percent crypto exposure to a 1 percent allocation in portfolios, and as a result of the SEC allowing these in the ETF wrapper there is more institutional grade security and custody to reduce hacking and fraud risks, while freeing investors from having to safeguard with private keys and wallets,” said Ben Loughrey, managing principal of Lock Wealth Management, in an email. “There are always going to be new exciting shiny objects coming online, and I think for the crypto investors that have heavier allocations this is a win for them.”
Even if the SEC proves to be more crypto-supportive than it was under former Chair Gary Gensler, the case for approving some products will be stronger than for others.
“There is a greater potential for Litecoin ETFs to be approved given that Litecoin is generally considered a commodity rather than a security. But XRP will likely not be as straightforward since the SEC is still under litigation with Ripple,” Islam said.
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