When will regulators loosen their grip as the Bitcoin ETF attracts over 20 billion in investments with a wave of cryptocurrency ETFs on the horizon

Coin World News Report:


Chinatimes.net.cn reporter Zhao Yi reported from Shanghai
As the cryptocurrency market continues to develop, investors are seeking new investment tools to participate in it.
Data shows that the net inflow of spot Bitcoin ETFs exceeded $20 billion for the first time on October 17, compared to gold ETFs, which took about 5 years to reach the same number. With the strong “money-sucking” power of Bitcoin ETFs, institutions are beginning to shift their focus to other cryptocurrency ETFs.
On October 17, asset management company Bitwise submitted a registration document for XRP ETF to the U.S. Securities and Exchange Commission (SEC). The day before, asset management company Canary Capital also submitted a registration statement to the SEC, planning to launch the first spot Litecoin (LTC) ETF. Prior to this, VanEck and 21Shares had successively submitted application documents for Solana ETF to the SEC.
“Institutions are submitting more ETF applications for different cryptocurrencies, aiming to capture the growth opportunities of these emerging assets and further meet the market’s demand for innovative financial products,” said Yu Jia Ning, co-chair of the Blockchain Special Committee of the China Communications Industry Association and president of Uweb, to the China Times reporter. From the perspective of the diversified needs of the financial market, investors are no longer satisfied with holding mainstream cryptocurrencies such as Bitcoin and Ethereum. More investors hope to use cryptocurrency ETFs, a compliant tool, to obtain more diversified asset allocation opportunities.
Institutions collectively target ETFs
Bitcoin spot ETFs have been highly sought after since their inception. According to data from the blockchain data analysis platform CryptoQuant, due to continuous inflows of funds, the asset under management (AUM) of Bitcoin spot ETFs in the United States has reached $60 billion.
According to data from independent research and consulting firm ETFGI, as of the end of August 2024, the global ETF market has experienced rapid growth, and this year’s newly listed ETFs have accumulated a large amount of assets. Among these newly listed products, the top three in terms of size are Bitcoin spot ETFs; among the top ten products, Bitcoin spot ETFs occupy five seats, demonstrating strong money-sucking ability and growth momentum.
Against this background, institutions have begun to lay out other cryptocurrency ETFs, and who will become the next ETF product after Bitcoin and Ethereum has become a topic of industry attention.
Canary Capital, which applied for a Litecoin ETF, believes that Litecoin has a good performance record and has maintained 100% normal operation since its launch, which will be beneficial to its management of the Litecoin ETF.
Litecoin was created in 2011 as a lightweight alternative to Bitcoin. It has improved upon Bitcoin’s open-source code to achieve faster transaction speeds and lower costs. Previously, the U.S. Commodity Futures Trading Commission (CFTC) defined Litecoin as a commodity, not a security, in a complaint against KuCoin, which may have a positive impact on the review of Litecoin ETFs.
In addition to the application for Litecoin ETF, Canary Capital has also submitted an application for XRP ETF recently. However, there is still controversy over whether XRP will be defined as a commodity or a security.
“The cryptocurrency market is constantly evolving and diversifying, and investors have shown more interest and demand for different types of cryptocurrencies,” said Jiang Han, senior researcher at the Pangu Think Tank, to the China Times reporter. The applications from institutions reflect their optimism about the cryptocurrency ETF market. On the other hand, this also helps promote further standardization and legalization of the cryptocurrency market, and improve market transparency and fairness.
Recently, cryptocurrency asset management company Grayscale also submitted an application to the SEC, planning to convert its $520 million fund that tracks multiple cryptocurrencies into an exchange-traded fund (ETF), with 76% of the fund’s assets allocated to Bitcoin, 18% to Ethereum, and the rest to Solana, XRP, and Avalanche.
Previously, the SEC approved Grayscale’s request to convert its Bitcoin Trust (GBTC) and Ethereum Trust (ETHE) into ETFs. Since the Bitcoin fund converted into an ETF in January, it has seen $21 billion in outflows, and the Ethereum ETF has seen $3 billion in outflows since its conversion in July.
“If these applications are approved, it will further consolidate the mainstream status of cryptocurrency assets and drive more traditional investors into the market,” said Yu Jia Ning. Institutional investors can invest in cryptocurrency assets through compliant and secure channels, which will significantly enhance market liquidity and reduce price volatility of cryptocurrency assets. At the same time, with the popularity of ETF products, the correlation between the traditional financial market and the cryptocurrency market will strengthen, and the volatility of cryptocurrency assets may be more closely linked to global macroeconomic policies and monetary policies.
Yu Jia Ning pointed out that the widespread introduction of cryptocurrency ETFs may bring certain risks, especially in terms of market manipulation and systemic risks. With the rapid inflow and outflow of large amounts of funds, the market may face liquidity shocks under extreme market conditions, especially in the case of high macroeconomic uncertainty. Therefore, regulatory agencies will continue to maintain strict monitoring of market operations and risk management in the future.
Regulations are the biggest “roadblock”
The attitude of regulatory agencies towards the cryptocurrency market is a key factor affecting the development of ETFs.
“Although the U.S. SEC has an open attitude towards spot Bitcoin and Ethereum ETFs, ETF applications for other cryptocurrencies still face many challenges,” Yu Jia Ning believes that this is mainly due to the inherent volatility and manipulability of the cryptocurrency market. Compared to Bitcoin and Ethereum, assets such as Litecoin and Solana have relatively lower market maturity and liquidity, making them more susceptible to the influence of single events or investor sentiment.
“When the SEC reviews these cryptocurrency ETFs, it will inevitably strengthen its scrutiny of market manipulation, asset custody security, and transparency. Therefore, when institutions apply for such products, they need to fully demonstrate that they have sufficient market liquidity and secure trading mechanisms to obtain regulatory approval,” said Yu Jia Ning.
On October 18, the SEC officially appealed the XRP ruling made by the court, once again raising legal disputes over whether the sale of XRP by cryptocurrency exchanges meets the criteria of a security. The regulatory agency has questioned key aspects of the court’s ruling, including the ruling to clear Ripple executives and non-cash XRP distributions.
Recently, the SEC once again postponed its decision on the spot Ethereum ETF options, extending the deadline for the ruling from October 19 to December 3. The SEC stated that it needs more time to consider the application proposal. Compared to Bitcoin ETFs, the performance of Ethereum ETFs after listing has been disappointing, with continuous net outflows totaling $556 million to date.
Yu Jia Ning believes that the main concerns of regulatory non-approval are concentrated in three areas: market manipulation risk, insufficient liquidity, and custody security. Compared to traditional financial markets, the cryptocurrency market still has higher volatility, and market transparency and price manipulation issues are more prominent. Regulatory agencies such as the U.S. SEC attach great importance to market manipulation, especially for cryptocurrencies with smaller market capitalization than Bitcoin or Ethereum, their lower liquidity and potential market manipulation behaviors will be important obstacles to ETF applications.
According to the latest report, U.S. regulatory agencies have collected a total of $31.92 billion (approximately RMB 227.26 billion) in fines and settlements from 25 cryptocurrency companies since 2019, showing a high level of concern for the risks in the cryptocurrency market.
As of now, in 2024, U.S. regulatory agencies have reached settlements with cryptocurrency companies eight times, collecting over $19 billion (approximately RMB 135.27 billion) in fines and settlements, which is a historical high. This represents a 78% increase compared to 2023 and an 8327% increase compared to 2022.
In response, Yu Jia Ning believes that the SEC’s attitude towards the cryptocurrency market can be seen as a pragmatic balance between compliance and regulation. The SEC’s frequent law enforcement actions are not only targeting individual companies or projects, but reflect its overall regulatory logic, which is to regulate the industry and prevent market abuse and harm to investors.
“In the long run, the regulatory trend will become more institutionalized and refined,” Yu Jia Ning believes that future global cryptocurrency regulations will gradually converge, and major economies including the United States may provide clearer legal frameworks for cryptocurrencies through legislation or executive orders. For example, more inclusive regulations may be introduced to allow more compliant companies to enter the market, while setting standards for cryptocurrency exchanges, custodians, and DeFi platforms. This means that companies that comply with strict compliance operations in advance will have greater development opportunities, especially those willing to cooperate with regulation and enhance transparency, which will be more likely to win the favor of institutional investors.
According to Jiang Han, the strict regulation of cryptocurrency institutions by the SEC reflects its emphasis on protecting investor interests and maintaining market stability. By filing lawsuits and imposing fines, the SEC is strengthening its regulatory efforts in the cryptocurrency market. Future regulatory trends may become stricter and more comprehensive, and regulatory measures in areas such as cryptocurrency exchanges, wallets, and ICOs may be further strengthened. At the same time, regulatory policies may be adjusted and improved as the market changes.
Editor: Xu Yunqian, Chief Editor: Gong Peijia