The Crypto Assets market welcomes a new round of pump, alts perform brilliantly

Recently, the crypto assets market has shown new vitality. Although the Bitcoin price has experienced some corrections, Ethereum has broken through the $3600 mark, and sectors such as DeFi and Layer 2 have generally risen, revitalizing the altcoin market. This stands in stark contrast to the market situation not long ago, when Bitcoin was close to a $100,000 high, while the altcoin market was in a slump.

In this round of bull market led by institutions, most market participants have not fully benefited; instead, the altcoins they hold are continuously having funds drained by Bitcoin, showing a downward trend. Even mainstream coins like Ethereum have seen relatively lower increases compared to Bitcoin, with the ETH/BTC ratio continuously declining throughout the year, dropping from 0.053 to a low of 0.032, only recently starting to rebound.

However, the altcoin market seems to have regained vitality in recent days. Coins such as SOL, XRP, LTC, and LINK initiated a pump last weekend, and the daily trading volume of decentralized exchanges in the Solana ecosystem exceeded $6 billion, with XRP briefly peaking at $1.63. This morning, Ethereum strongly broke through $3600, driving a widespread rise in the entire altcoin sector, with the Defi sector seeing a 24-hour rise of up to 8.47%.

Analyzing the reasons for the rise of alts, in addition to the optimistic sentiment brought by the overall bull market atmosphere, the participation of Wall Street institutions has also played a significant role. The launch of ETF products is the most direct manifestation.

Looking back at the starting point of this bull market, the launch of 11 Bitcoin spot ETFs has triggered a market frenzy, with the participation of Wall Street giants like BlackRock and Fidelity promoting the mainstreaming of Bitcoin, while also significantly lowering the barriers for investors to participate in the encryption market. After the approval of Bitcoin and Ethereum spot ETFs, the market began to focus on the next token that might attract Wall Street's attention. Based on market capitalization and capital considerations, Solana once became the most talked-about candidate.

At the end of June, asset management giant VanEck was the first to submit the S-1 form for the "VanEck Solana Trust" to the SEC, followed by 21Shares who also submitted an application. In early July, the Chicago Board Options Exchange (Cboe) submitted a 19b-4 document for the Solana ETFs of these two companies, bringing the hype around SOL ETF to a climax.

However, the SEC's tough stance quickly dampened the enthusiasm for altcoin ETFs. In August, it was reported that the CBOE had removed two potential Solana ETF applications from its website, and analysts believe the chances of approval are slim.

However, as time goes by, the market environment has changed. On November 22, documents from the Cboe BZX exchange showed that the exchange proposed to list and trade four Solana-related ETFs, initiated by Bitwise, VanEck, 21Shares, and Canary Funds. If the SEC officially accepts the application, the final approval deadline is expected to be in early August 2025.

In addition to Solana, more altcoin ETFs are in preparation. In the past month, the crypto investment firm Canary Capital submitted spot ETF applications for three coins, including XRP, Litecoin, and HBAR, to the SEC. According to Nate Geraci, president of ETF Store, at least one issuer is currently attempting an ETF application for ADA (Cardano) or AVAX (Avalanche).

The applications for these altcoin ETFs have sparked widespread discussion, and the market's expectations for potential capital inflows have further fueled investor enthusiasm. However, from an objective standpoint, the approval of spot ETFs for crypto assets typically needs to meet two implicit conditions: first, they must not be explicitly defined as securities by the SEC; second, there needs to be leading indicators demonstrating market stability and non-manipulability, with the typical characteristic being that tokens can be traded on the Chicago Mercantile Exchange (CME). Currently, apart from Bitcoin and Ethereum, it seems that no other crypto assets fully meet these standards.

Nevertheless, the market remains optimistic about the approval of ETF for alts such as SOL and XRP. Bloomberg ETF analyst James Seyffart believes that the approval timeline for these ETFs may be extended to the end of 2025, but the SEC may approve ETFs related to Solana within two years. ETF Store president Nate Geraci is even more optimistic, expecting that the Solana ETF may be approved before the end of next year.

The supporting factors behind this optimistic sentiment mainly come from the new government that is about to take office. The new government's attitude towards Crypto Assets is relatively friendly, and the changes in the regulatory environment have given the Crypto Assets industry stronger confidence.

From the perspective of internal industry regulation, the SEC is about to undergo a leadership change. Current SEC Chairman Gary Gensler announced he will resign on January 20, 2025, which may put a pause on the SEC's stringent regulations in recent years. During Gensler's tenure, the SEC has taken enforcement actions against multiple entities related to Crypto Assets, completing thousands of cases and recovering approximately $21 billion in fines.

Although the new SEC chairman candidate has yet to be determined, there are reports that former SEC commissioner Paul Atkins may take over Gensler's position. At the same time, there are rumors that the new government may expand the Commodity Futures Trading Commission (CFTC)'s regulatory authority over the digital asset space, which could undermine the classification of Crypto Assets as securities.

From a broader external perspective, there is no shortage of cryptocurrency supporters in the new government. Several cabinet members hold or support crypto assets, which suggests that future regulation of crypto assets may become more lenient. If a complete regulatory framework for encryption assets can be established during this government's term, it will provide a clearer direction for the future development of the industry.

In addition to regulatory aspects, the new government-owned enterprises are also actively laying out plans in the encryption industry. According to reports, a certain media technology company is negotiating the acquisition of the crypto assets exchange Bakkt with the Intercontinental Exchange (ICE). The company has also submitted an application for a crypto assets payment service named Truth Fi, planning to venture into the crypto payment sector. These developments indirectly reflect the government's positive attitude towards crypto assets.

It is precisely based on the factors mentioned above that the market has rekindled hope for altcoin ETFs. With the change in leadership at the SEC, the controversy surrounding the securities nature of altcoins may temporarily subside, laying a preliminary foundation for the launch of ETFs.

Even though the prospects for altcoin ETFs are still unclear, Wall Street is unwilling to give up this massive market of over $30 trillion. Traditional financial institutions are building new investment products and derivatives around Crypto Assets to facilitate investors in incorporating Crypto Assets into their portfolios.

Sui Chung from CF Benchmarks stated that mainstream investors, in addition to establishing direct exposure through spot Bitcoin ETFs, will also customize their exposure to the asset class through additional products. Currently, the most popular products include commodity futures products linked to Crypto Assets that earn returns, as well as products that provide downside protection through options. The company is planning to launch Nasdaq Bitcoin index options.

John Davi, the Chief Investment Officer of Astoria Portfolio Advisors, also mentioned that he is considering increasing Bitcoin exposure in the ETF model portfolios he manages.

In the long run, with the relaxation of regulations and increased investor interest, it will become an inevitable trend for financial institutions to conduct in-depth research on Crypto Assets for the sake of traffic acquisition and market competition. On the product front, institutions will no longer be limited to Bitcoin and Ethereum; the productization and standardization of Crypto Assets will be further strengthened, and derivatives may experience explosive growth, aimed at clearing obstacles for investors to enter the market. It can be anticipated that in the future, investors will have more ways to invest in products related to cryptocurrencies.

While new product development is underway, existing ETFs will also benefit from this trend. Taking the Ethereum spot ETF as an example, its fund inflows have long lagged behind those of the Bitcoin ETF. As of November 27, the net inflow of funds into the Ethereum spot ETF was approximately $240 million, while the net inflow for the Bitcoin spot ETF reached as high as $30.384 billion, indicating a significant gap.

The reasons for this gap include Ethereum's disadvantages in value stability and positioning compared to Bitcoin, as well as the SEC's rejection of the core staking function, which has weakened investor enthusiasm. From a cost perspective, directly holding ETH can yield about 3.5% in staking rewards, while holding institutional ETFs not only misses out on this risk-free return but also incurs management fees ranging from 0.15% to 2.5%.

However, with the changing regulatory environment, the Ethereum spot ETF may no longer be unrelated to staking features in the future. The SEC's previously staunch opposition to staking has softened, and there are already precedents in Europe for launching ETF products with staking features. Recently, European ETP issuer 21Shares AG announced the addition of staking functionality to its Ethereum core ETP product.

Despite the promising outlook for ETF products, actual capital inflows remain to be seen. Even Ethereum's attraction to traditional capital is relatively limited, as evidenced by a certain company's Solana Trust total assets of only $70 million, indicating that the investment purchasing power for alts may be less optimistic than expected. As a result, the head of the digital asset department at a large asset management company has stated that the company has little interest in other Crypto Assets outside of Bitcoin and Ethereum.

Regardless of how the subsequent approvals progress, the hype surrounding altcoin ETFs has already begun, which is undoubtedly a shot in the arm for the long-dormant altcoin market. The market hopes this wave of enthusiasm can bring new growth momentum to the Crypto Assets ecosystem.