The world of cryptocurrency exchange-traded funds (ETFs) may be on the cusp of a year filled with innovation, as new funds and strategies emerge. However, the surge in demand seen during the initial launch of bitcoin ETFs is unlikely to be replicated.
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Bitcoin ETFs made their debut a year ago, earning recognition as one of the most successful ETF launches in history. These funds, spearheaded by BlackRock’s iShares Bitcoin Trust, amassed a staggering $36 billion in net new assets within their first year.
This remarkable success served as a catalyst for institutional adoption of cryptocurrencies, significantly contributing to the doubling of the overall market value of digital assets in 2024.
Despite the buzz surrounding bitcoin ETFs, the next wave of crypto ETFs may face diminished enthusiasm. Applications for funds tracking tokens such as Solana, XRP, Hedera (HBAR), and Litecoin are already in the pipeline.
Yet, even if these ETFs gain approval this year, their potential to attract substantial investor capital pales compared to bitcoin ETFs, according to insights from JPMorgan. Notably, there is also an application under review for a hybrid bitcoin and ether ETF.
“We don’t expect the next wave of cryptocurrency [exchange-traded product] launches to have a significant impact on the broader crypto ecosystem,” wrote JPMorgan analyst Kenneth Worthington in a recent note. “This is largely due to the smaller market capitalizations of other tokens and comparatively lower levels of investor interest.”
Worthington highlighted that bitcoin ETFs now hold $108 billion in assets, accounting for 6% of bitcoin’s total market capitalization after their inaugural year. By contrast, ether ETFs, which launched with less fanfare in July, represent only 3% ($12 billion) of ether’s market cap after six months of trading.
Applying these adoption rates to Solana, which boasts a $91 billion market cap, JPMorgan estimates ETFs tied to the token could attract $3 billion to $6 billion in net new assets. Similarly, a fund tracking XRP, with its $146 billion market cap, might secure between $4 billion and $8 billion in new investments.
Worthington also emphasized the pivotal role of regulation in shaping the future of crypto ETFs. The industry is optimistic about the prospect of a pro-crypto Congress and White House in 2025, which could foster growth and innovation across the cryptocurrency sector.
“The regulatory and legislative framework in the U.S. will define the nature, scope, and focus of new products and services,” Worthington explained. “A new administration and a potential change in SEC leadership could pave the way for fresh opportunities in cryptocurrency innovation.”
Tyron Ross, founder and president of the registered investment advisory firm 401 Financial, shares a similar outlook. He anticipates that demand for bitcoin ETFs in the coming year will remain robust, though unlikely to reach the highs witnessed in 2024. Ross attributes this sustained interest to increased investor education and growing confidence in the maturing 16-year-old digital asset class.
The pace of adoption could quicken if bitcoin ETFs find their way into Wall Street's model portfolios, Ross suggested. “Currently, none of these portfolios include cryptocurrency, which limits the sector’s growth potential.
Until crypto gains inclusion, the kind of explosive growth we saw last year won’t happen again this year,” he told CNBC. “Most advisors rely on off-the-shelf models, and these typically lack exposure to bitcoin or other cryptocurrencies. Once that changes, we could see another parabolic growth phase like in 2024.”
Ross also noted a sense of optimism within the crypto space, with regulatory uncertainties beginning to lift. “There’s a palpable feeling that the regulatory clouds are clearing, giving way to brighter skies. Still, expectations for ETF growth this year should be tempered,” he concluded.
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