Which New ETFs for Cryptocurrencies Are Truly Valuable?
For Wall Street, the January 2024 introduction of spot Bitcoin (CRYPTO: BTC) exchange-traded funds (ETFs) was perhaps one of the most successful in recent history. Over $150 billion has now been invested in these spot Bitcoin ETFs overall.
Given that the SEC has simplified the listing procedure for crypto ETFs, it may come as no surprise that Wall Street is currently getting ready for a wave of new crypto ETFs. Up to 100 new cryptocurrency exchange-traded funds (ETFs) may be released in the next six to twelve months, according to some estimates.
But how many of these new ETFs will actually be worth buying? To answer that question, it’s helpful to come up with a few common sense rules.
Focus on cryptocurrencies that institutional investors are buying
Even though there are thousands of different cryptocurrencies, institutional investors are only actually interested in purchasing a small number of them. There is, of course, Bitcoin. Ethereum (CRYPTO: ETH) is another option. But it’s hard to find anything beyond Bitcoin and Ethereum.
Institutional investors can check where their money is going by looking at CoinShares’ most recent institutional fund flow data. Bitcoin has received $25 billion so far this year. Ethereum has seen an additional $12.5 billion in investment. Solana (CRYPTO: SOL) has received an additional $1.5 billion, while XRP (CRYPTO: XRP) has received an additional $1.5 billion. Apart from this, a few coins have garnered some attention, but nothing noteworthy.
I will thus be concentrating on Solana and XRP when the new spot ETFs are released. JPMorgan Chase (NYSE: JPM) data indicates that up to $6 billion could move into Solana and up to $8 billion into XRP. Their prices will undoubtedly rise as a result of that kind of consistent buying. However, because there aren’t many new buyers for other cryptocurrencies, there might not be any price increase at all.
Focus on spot crypto ETFs
Making sense of all the cryptocurrency ETF products is already becoming difficult. Although they are not “spot” ETFs, several claim to provide “spot exposure” to the cryptocurrency market. To comply with U.S. regulations, they might instead use complex operating structures or fabricate stakes in the underlying coin.
Consider the Rex-Osprey XRP ETF (NYSEMKT: XRPR). According to the company, it is “the first U.S.-listed ETF offering exposure to spot XRP.” Because of this, a lot of people might believe they are purchasing a spot XRP ETF. Rex-Osprey, however, makes it apparent that “Investing in XRPR is not equivalent to investing directly in XRP.”
You will understand why if you read the offering prospectus: “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.”
Put otherwise, it is unlikely that the fund has a 100% stake in XRP. Furthermore, even the funds that the ETF is allocating to XRP might not constitute spot purchases of the cryptocurrency. The fund provides plenty of flexibility to invest in a wide range of other XRP-related assets, not just XRP.
The spot Bitcoin ETFs, on the other hand, are entirely invested in Bitcoin and only purchase Bitcoin on the spot cryptocurrency market. Investors are thus receiving “pure” Bitcoin rather than a fake version of it. This explains why investing in these spot Bitcoin ETFs is so amazing.
Buyer beware of these ETFs
A sizable portion of the new cryptocurrency exchange-traded funds (ETFs) are probably going to have a lot of features. For instance, some might provide leverage to investors. Others may provide investors with an ingenious means of gaining exposure to financial products that U.S. regulators have not yet authorized.
Steer clear of these like the plague. All of these glitzy extras probably have expensive fee structures and will only tempt you to abandon a long-term buy-and-hold approach.
Additionally, some have hinted that the most well-known meme coins, such as Dogecoin (CRYPTO: DOGE) and Shiba Inu (CRYPTO: SHIB), would soon receive their own spot ETFs. Spot ETFs won’t alter the fact that meme coins are already extremely risky and speculative investments. You can so safely stay away from any cryptocurrency exchange-traded funds (ETFs) that use meme coins.
Ultimately, the introduction of new cryptocurrency exchange-traded funds (ETFs) might not be as exciting as it seems. When the new spot ETFs for XRP and Solana are released, I will be somewhat interested in them, but I’m likely to pass on anything else.
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