Altcoin ETFs: Limited Demand Despite Regulatory Approval

Altcoin ETFs are poised to hit the U.S. market in 2025, but analysts caution that demand may be limited. Despite the excitement surrounding these new investment vehicles, the appetite for altcoin ETFs is expected to be significantly lower than that for Bitcoin (BTC) and Ether (ETH) ETFs.

Asset managers have submitted over a dozen applications to launch U.S. ETFs holding altcoins such as Solana (SOL), XRP (XRP), and Litecoin (LTC). While many of these applications are expected to receive regulatory approval this year, analysts predict weak initial demand for altcoin ETFs, primarily from retail investors.

Katalin Tischhauser, research head at Sygnum, estimates cumulative inflows for altcoin ETFs to range from several hundred million to $1 billion, a far cry from the over $100 billion in net assets held by U.S. Bitcoin ETFs. Bryan Armour, director of passive strategies research at Morningstar, agrees that institutional investors and advisors are unlikely to wait for altcoin ETFs before investing in these cryptocurrencies.

Early adopters of altcoins typically already hold spot cryptocurrencies onchain or through spot exchanges, making altcoin ETFs less appealing. Wealth managers and institutional investors are more likely to hold altcoins through index funds that passively track the broader crypto market. Franklin Templeton and Hashdex have already launched ETFs holding both spot Bitcoin and Ether, with plans to add additional cryptocurrencies pending regulatory approval.

Asset managers launching altcoin ETFs remain optimistic, citing research by JPMorgan that projects cumulative demand exceeding $14 billion for these ETFs. Federico Brokate, head of 21Shares' U.S. operations, believes that even crypto-native investors will benefit from holding altcoins in an ETF wrapper due to institutional pricing and custody advantages. Additionally, independent registered investment advisors (RIAs) are showing interest in adding altcoin ETF allocations to differentiate from competitors.

As with any new investment product, the adoption of crypto ETFs follows an "adoption spectrum" for each client segment. While some early adopters have already embraced Bitcoin and Ether ETFs, others will likely increase their adoption over time. As altcoin ETFs become more widely available