Regulators Face Crypto ETF Tsunami as Innovation Outpaces Rules

Avalanche, Sui, and Bonk ETFs have recently flooded the U.S. Securities and Exchange Commission (SEC) with applications, signaling a surge in innovation and risk-taking among crypto asset issuers. These filings, submitted by firms such as Bitwise, Defiance, Tuttle, and T-Rex, span a broad range of products, from infrastructure coins like Avalanche to memecoins like Bonk and leveraged products such as the 2x Orbs ETF. The filings add to a queue of over 90 crypto ETF applications currently under review by the SEC, indicating growing institutional interest and confidence in the space.

Analysts are divided on the likelihood of approval for these products. Pratik Kala, head of research at Apollo Crypto, noted that the Avalanche (AVAX) ETF has the highest probability of approval due to its simplicity and infrastructure-focused nature. This is in contrast to more complex or speculative products, such as the basis trade ETFs and memecoin-linked offerings, which face greater regulatory scrutiny. For example, Defiance’s market-neutral Bitcoin and Ethereum ETFs utilize arbitrage strategies, a novel structure that may not align with the SEC’s traditional approach to ETF oversight.

The SEC’s evolving regulatory framework has added clarity to the approval process, particularly with the introduction of the Generic Listing Standards. This new framework allows qualifying cryptocurrencies with futures trading for at least six months to be eligible for ETF listings, effectively delegating part of the approval process to the Commodity Futures Trading Commission (CFTC). As a result, major tokens such as Solana, XRP, and Litecoin could see ETF approvals by October 2025, depending on their compliance with these standards. Analysts have assigned 95% approval odds for Solana, XRP, and Litecoin-based ETFs before the end of the year.

Tuttle Capital Management, a firm managing over $3.6 billion in assets, recently filed for a spot Bonk ETF alongside products covering Litecoin and Sui. The inclusion of long-tailed altcoins raises concerns among analysts regarding liquidity and long-term sustainability. Kala emphasized that the SEC may adopt a stricter stance toward memecoin-based ETFs due to their speculative nature and limited market depth. The SEC’s February statement that meme coins are not inherently securities has been cited as a potential signal that such applications may continue to rise, but regulatory caution is expected.

Market dynamics are also shifting in favor of crypto ETFs. Institutional adoption is accelerating, with major providers such as Grayscale, CoinShares, and Franklin Templeton submitting applications for new products. BlackRock’s Bitcoin ETF, for instance, has recorded significant inflows, reflecting growing investor appetite. Meanwhile, corporate treasuries are increasingly holding and staking Ethereum, with SharpLink Gaming becoming the largest corporate holder of the asset. These developments underscore the growing legitimacy of crypto assets within traditional financial frameworks.

The regulatory landscape remains fluid, with the SEC balancing innovation and investor protection. The commission recently approved in-kind redemption and creation mechanisms for Bitcoin and Ethereum ETPs, a move expected to improve efficiency and reduce costs for ETF providers and investors. However, uncertainties remain, particularly regarding the legal classification of certain tokens. For example, ongoing litigation around Solana’s status as a security could delay its ETF approval, potentially pushing it to 2026. Nevertheless, the momentum in the sector is undeniable, with industry insiders anticipating a transformative year for crypto ETFs in 2025.