Can altcoin ETFs avoid the predicament of Ethereum?

At the beginning of his tenure, the new chairman of the U.S. Securities and Exchange Commission, Paul Atkins, faced a series of significant cryptocurrency decisions. He postponed rulings on multiple ETF proposals until June, highlighting the challenges faced by this new chairman, who has a friendly attitude towards cryptocurrency.

Interestingly, as the wave of altcoin ETF applications rises, funds tracking Ethereum are experiencing a rapid outflow of capital. Nevertheless, fund companies are still competing to apply for various ETFs, ranging from mature alts to meme coins, and even Trump coin. This contrast raises a question: since the performance of the Ethereum ETF is so concerning, why are alts still competing to apply for ETFs?

Currently, asset management companies have submitted ETF applications for at least 15 types of cryptocurrencies other than Bitcoin and Ethereum. Many companies are actively positioning themselves, covering a wide range from mainstream alts to emerging tokens.

The main purpose of applying for an ETF is to enhance accessibility for investors and to achieve broader adoption through fund companies. This involves not only the cryptocurrency sector but also the complexities of politics, which even affect former US President Trump's related investment plans.

However, the timing of these applications is puzzling, as they come at a time when Ethereum ETFs are experiencing a crisis of investor confidence. As of mid-April, Ethereum ETFs have seen seven consecutive weeks of outflows, totaling over $1.1 billion, with assets under management hitting a historic low. This stands in stark contrast to Bitcoin ETFs, which, despite market volatility, continue to see strong inflows.

The dilemma of Ethereum ETF involves several key issues: first is the cost structure issue, where high management fees make it difficult to compete with low-cost rivals; second is the increasingly complex value narrative of Ethereum, which is hard to explain simply to investors; third is the cautious attitude of regulators towards staking, which limits the differentiated features of the product.

Despite these concerns, the surge in applications for altcoin ETFs has not slowed down. This contradiction is primarily driven by several factors:

1. "Atkins Effect": The appointment of the new chairman brings positive signals to the cryptocurrency industry.

2. Institutional demand growth: Most institutional investors plan to increase their cryptocurrency allocation.

3. Differentiated value proposition: Each altcoin offers unique investment reasons.

4. Growth Potential: Compared to larger market cap cryptocurrencies, small to mid-cap tokens may offer more significant returns.

The approval of these ETFs may have a significant impact on the market. Analysts predict that some major altcoin ETFs could attract a large amount of funding in the short term, even surpassing the existing Ethereum ETF in scale. However, this may also lead to a dilution of institutional investors' interests, reducing the attractiveness of individual products.

For retail investors, these ETFs provide a secure channel for cryptocurrency investments, but they may also reduce investment returns due to management fees and tracking errors. Additionally, a large number of tokens locked in the ETFs may affect market liquidity and volatility.

Overall, the rise of altcoin ETFs reflects the market's confidence in specific crypto assets, rather than simply replicating the model of the Ethereum ETF. Smart issuers are learning from the lessons of the Ethereum ETF to design more attractive products. In the future, small-market-cap tokens with clear value propositions and strong growth potential may become the biggest winners. The predicament of the Ethereum ETF should not be seen as a warning, but rather as necessary market feedback that paves the way for the next wave of more successful ETFs.