Will the large number of pending altcoin ETFs bring about a comprehensive bull run?

Author: Dami-Defi; Source: X, @DamiDefi; Compiled by: AididiaoJP

Bloomberg predicts that after Bitcoin and Ethereum ETFs, more than 200 types of crypto ETFs will be launched in the future. Will altcoins receive the same favor, or will they face more volatility? Let's delve into the analysis:

• Historical Background
• DATs: Collateral Risk and MNAV Observation
• Bullish and Bearish Reasons for Altcoin ETFs
• How did we get to this point? Key catalysts
• Macroeconomic Impact: $300 billion in stablecoin liquidity will drive the DeFi bull market
• Inverse Signal
• What to pay attention to during the ETF launch
• Three major ETFs worth paying attention to that have a huge impact

Historical Background

Since the launch of the first batch of ETFs, there have been significant changes in the crypto ETF space. The total net assets of U.S. spot Bitcoin ETFs have surpassed $146 billion, solidifying Bitcoin's dominant position with a 59% share of the crypto market. Ethereum ETFs rank second, holding approximately $25 billion in assets. The cumulative net inflow of spot Bitcoin ETFs has now exceeded $50 billion, and the market continues to see daily inflows of funds.

Before the emergence of crypto ETFs, traditional finance held exposure to digital assets through methods like GBTC and MSTR. This approach gave rise to Digital Asset Treasury companies (DATs), which accumulate specific altcoins such as ETH, SOL, XRP, etc., so that investors can gain exposure through stocks. DATs serve as a bridge between the pre-ETF era and the altcoin ETFs pending approval today, and they are also where risks arise.

DATs: Collateral Risks and MNAV Observation

Market capitalization to net asset value multiple (MNAV) is important because it shows how easy it is for a DAT to raise funds. When this multiple is above 1, it is easier to obtain debt, allowing for the purchase of more tokens. If it remains below 1 for an extended period, financing will dry up, and selling reserves becomes a real risk.

Please closely monitor the MNAV and premiums of top DATs, PIPE unlock dates, liquidity, and any balance sheet information in the 10-Q reports or operational updates. Pressure may also spread; issues with small DATs could affect larger DATs, or problems at the top level may create ripple effects downwards.

Bullish and Bearish Reasons for Altcoin ETFs

Bullish Reasons

The rise of altcoin ETFs may soon bring significant liquidity boosts to the market. Take the ProShares CoinDesk 20 ETF as an example; it includes important assets such as HBAR, ICP, XRP, and SOL. A total of 155 ETPs tracking 35 cryptocurrencies are awaiting approval. A large influx of liquidity into these ETFs will drive up the prices of the related altcoins, continuing the upward trend of Bitcoin and Ethereum ETFs.

Moreover, the inflow of funds into ETFs has driven market attention towards the underlying tokens, prompting some allocators to purchase higher beta DATs. The DATs subsequently raise funds and accumulate more tokens, which may further reinforce the narrative of altcoins. More importantly, issuers like BlackRock, Fidelity, VanEck, and Grayscale provide a credible gateway. This could unleash a larger and more stable investment than just accessing it through exchanges.

Bearish Reasons

On the other hand, altcoins find it difficult to regain their usual bull market hype, and this weak demand may limit their performance. The CoinDesk 20 Index highlights this issue: BTC and ETH dominate with weights of 29% and 22%, while altcoins like ICP and FIL account for only 0.2% of the basket. This concentration means that more funds will flow into mainstream coins, benefiting them more.

In addition, if funds shift from DAT stocks to altcoin ETFs, the net asset value (MNAV) of DAT may fall below 1, leading to a depletion of funds. This could force the sale of reserves, thereby exerting direct sell pressure on those altcoins.

Microstructure at launch: Even with a bullish outlook in the medium term, one should expect a 24-72 hour “buy the rumor, sell the news” volatility around the ETF listing.

How did we get here? Key catalysts

The growing interest in altcoin ETFs is driven by a combination of factors:

On September 17, the U.S. Securities and Exchange Commission (SEC) introduced the “Universal Listing Standards for Commodity Trust Shares.” This standard shortens the approval time for new ETFs and makes the process more predictable. Thanks to the SEC's universal listing standards, we may see multiple ETFs approved shortly after the government reopens.

Earlier, in July, the SEC allowed non-Bitcoin crypto ETFs to conduct physical redemptions, aligning them with traditional commodity ETFs. This reduced liquidity friction and attracted more institutional funds.

The success of Bitcoin and Ethereum spot ETFs has also driven broader adoption, with 59% of institutions expected to allocate more than 10% of their portfolios to digital assets by mid-2025.

Rule of thumb (strict standard): Spot trading venues regulated by ISG, or at least six months of regulated futures trading with data sharing, or tracking of over 40% in existing listed ETFs. This has cleared the way for many major and mid-cap tokens.

Macroeconomic Impact: $300 Billion Stablecoin Liquidity Will Drive DeFi Bull Market

By October 2025, there will be nearly $300 billion in stablecoin liquidity circulating globally. This massive infrastructure lays the foundation for ETF-driven capital catalysts, bringing institutional funds into the DeFi ecosystem and amplifying returns.

The synergy between the liquidity of 300 billion dollars in stablecoins and the expected inflow of funds from altcoin ETFs could create a multiplier effect. For example, the inflows observed in Bitcoin ETFs and the market cap multiplier indicate that every 1 dollar of ETF capital could cause the market cap to expand by several dollars. If altcoin ETFs gain attention, this could release hundreds of billions of dollars, pushing the total crypto market cap to new highs by the end of 2025.

With the increased regulatory clarity under Trump's era policies, the influx of institutional capital could significantly boost DeFi protocols, especially those that integrate assets such as LINK and HBAR, which connect traditional finance and blockchain, or the staking ETFs applied for by REX-Osprey for altcoins like TAO and INJ.

In addition, against the backdrop of a weakening dollar and risk assets approaching historical highs, ETFs provide institutions with a convenient path to rotate along the risk curve from BTC to large-cap altcoins, and then to mid-cap stocks and DeFi.

Multiplier warning: The impact of inflow funds on valuation depends on sustained net creation and a healthy funding basis. DAT pressure (MNAV < 1 or unlocking event) may temporarily suppress this multiplier.

Reverse Signal

As a consistent contrarian investor, Jim Cramer recently urged investors to sell their cryptocurrencies and switch to stocks. Given his track record of being wrong at critical turning points, I believe now is the time to hold onto crypto assets more firmly.

Concerns that ETFs will erode DATs and trigger liquidation coexist with unprecedented strong market access and clarity, as well as ETF channels and approval queues. If the inflow of funds remains strong in the first week, this mismatch could form a bullish pattern. Historically, heightened concerns about pressure on DATs have coexisted with improved market access, often marking an accumulation phase rather than a market top.

What to pay attention to during the ETF launch period

• Days 0-3: Expect risks of front-running trading and “good news fully priced in is bad news.” Pay attention to net creation and redemption volumes as well as the displayed bid-ask spread.
• Weeks 1-4: If the net inflow remains strong and the spot price is in line with the perpetual contract price, the bias for buying on dips may continue.
• Rotation Signal: Higher weekly highs/lows of other cryptocurrencies relative to BTC indicate an expanding demand for altcoins. If this signal does not appear, it tends to maintain a heavy position in BTC.
• Cross-asset clues: The DAT premium improves with ETF fund inflows, creating a positive feedback loop.

Three Major Influential ETFs Worth Noting

• Solana: SOL is the most promising altcoin, aside from BTC and ETH ETFs, that is likely to benefit from diversification and has strong institutional belief. Among the 155 cryptocurrency ETFs awaiting approval, 23 are targeted at Solana. This strong indication of institutional demand shows the potential flow of funds. Therefore, tracking the ETFs that follow SOL is one of the most important ETFs to watch, and it may deliver significant investment returns.
• ProShares CoinDesk 20 ETF: Tracks 20 top cryptocurrencies, including BTC, ETH, and altcoins like XRP, which can diversify institutional exposure.
• REX-Osprey 21-Asset ETF: Aims to provide exposure to specific cryptocurrencies and offers staking functionality for tokens such as ADA, AVAX, DOT, NEAR, SEI, SUI, TAO, and HYPE.

The fourth quarter may quickly be dominated by the ETF narrative, boosting related sectors such as DeFi. Whether altcoins can capture the same demand as BTC is debatable, but this momentum is undeniable. Stay confident and prepare for the upcoming altcoin ETF narrative.