The SEC’s approval of generic itemizing requirements for crypto ETPs on Sept. 17 lower the launch timeline to 75 days and opened the door to plain-vanilla merchandise.
Bitwise predicts greater than 100 crypto-linked ETFs will launch in 2026. James Seyffart, senior ETF analyst at Bloomberg, backed the decision however added a caveat:
“We’ll see a whole lot of liquidations.”
That pairing of explosive progress and swift culling defines the following section, as generic requirements remedy a timing drawback quite than a liquidity drawback. For Bitcoin, Ethereum, and Solana, the flood reinforces dominance. For all the pieces else, it’s a stress take a look at.
The brand new guidelines mirror what the SEC did for fairness and bond ETFs in 2019, when annual launches jumped from 117 to over 370. Charge compression adopted instantly, with dozens of small funds closed inside two years.
Crypto runs the identical experiment with worse beginning situations. Custody is closely concentrated: Coinbase holds property for the overwhelming majority of crypto ETFs, claiming an as much as 85% share of world Bitcoin ETFs.
Moreover, APs and market makers depend upon a handful of venues for pricing and borrowing, and plenty of altcoins lack the derivatives depth to hedge creation/redemption flows with out shifting the market.
The SEC’s July 29 in-kind order allowed Bitcoin and Ethereum trusts to settle creations with precise cash quite than money, tightening monitoring however requiring APs to supply, maintain, and handle tax therapy for every basket. For BTC and ETH, that’s manageable.
For skinny underlyings, borrow would possibly dry up fully throughout volatility, forcing creation halts and leaving the ETF buying and selling at a premium till provide returns.
Plumbing below load
APs and market makers can deal with greater creation/redemption quantity on liquid cash. Their constraint is brief availability: when a brand new ETF launches on a token with skinny borrow, APs both demand wider spreads or step again fully, leaving the fund to commerce on money creations with greater monitoring error.
Exchanges can halt buying and selling if reference costs cease updating, a danger Dechert’s October evaluation confused even below the sooner approval pathway.
Coinbase’s first-mover custody place is now each a income engine and a goal. US Bancorp revived institutional Bitcoin custody plans, whereas Citi and State Road are exploring crypto-ETF custody relationships.
Their pitch: would you like 85% of ETF flows depending on a single counterparty? For Coinbase, extra ETFs imply extra charges, extra regulatory consideration, and the next danger {that a} single operational glitch spooks the whole class.
Index suppliers maintain quiet energy. Generic requirements tie eligibility to surveillance agreements and reference indices that fulfill alternate standards, gating who designs benchmarks. A handful of companies, resembling CF Benchmarks, MVIS, and S&P, dominate conventional ETF indexing.
Crypto follows the identical sample of wealth platforms defaulting to indices they acknowledge, making it tougher for brand new entrants to interrupt by way of, even with superior methodology.
2026 launch bucketLikely underlyings / examples (utilizing Seyffart queue as context)Custody notesIndex / benchmark notesAP / creation-redemption & unfold notes19b-4 nonetheless wanted?Single-asset majors: BTC / ETH “me-too” and fee-cut clonesMore zero-fee or low-fee spot BTC/ETH ETFs from second-tier issuers; potential share-class and currency-hedged variantsCoinbase nonetheless dominates ETF custody with 80%+ share of BTC/ETH ETF property; some banks (U.S. Financial institution through NYDIG, Citi, others) are re-entering however at smaller scale. Focus danger stays excessive except regulators push for diversification.Largely direct spot publicity; no index supplier, or easy NAV calculation off a single reference fee. Benchmarks from CF Benchmarks, CoinDesk, Bloomberg Galaxy used for NAV and advertising quite than portfolio guidelines.SEC now permits in-kind creations/redemptions for crypto ETPs, so APs can ship or obtain native BTC/ETH as an alternative of money, tightening spreads and lowering slippage. Plumbing is basically “solved,” so competitors is principally on charges and advertising.No, so long as merchandise match the generic Commodity-Based mostly Belief Share requirements and the underlying property meet ISG/futures standards; exchanges can record with no new 19b-4.Single-asset altcoins that meet generic criteriaSOL, XRP, DOGE, LTC, LINK, AVAX, DOT, SHIB, XLM, HBAR, and so on., which both have already got or are near having qualifying regulated futures or ETF publicity.Custody will likely be thinner and extra concentrated: Coinbase plus a handful of specialists that really help every coin at institutional scale. Smaller custodians will wrestle to signal sufficient mandates to amortize safety and insurance coverage prices.Some funds will likely be pure single-asset; others will wrap a futures-linked or blended index if spot markets are fragmented. Indexers (CF, CoinDesk, Bloomberg Galaxy, Galaxy, and so on.) acquire leverage as “gatekeepers” for which markets rely for pricing and surveillance.APs face actual borrow and quick constraints in skinny markets. Even with in-kind allowed, finding borrow for hedging is tougher than for BTC/ETH, so spreads will likely be wider, and creations could also be extra episodic. Anticipate extra frequent “no-arb” intervals the place monitoring error blows out when funding or borrow spikes.Usually no, if every underlying meets the generic futures/ISG take a look at. However any asset that doesn’t have a qualifying futures market or ETF publicity fails the generic take a look at and would nonetheless want a bespoke 19b-4 to record.Single-asset long-tail and meme-coin ETPsTRUMP, BONK, HYPE, area of interest gaming and DeFi tokens within the submitting queue that lack deep regulated futures or ISG-member spot marketsVery few top-tier custodians will contact the actually illiquid names, so these merchandise could depend on smaller or offshore custodians. That concentrates operational and cyber danger in names that have already got weak fundamentals.Pricing extra more likely to lean on composite indexes constructed from a handful of centralized exchanges. Any manipulation or wash buying and selling on these venues immediately contaminates NAV; index suppliers’ methodologies turn out to be a significant systemic danger variable.APs will usually be issuers’ personal associates or a tiny circle of buying and selling companies keen to warehouse stock. Creations/redemptions could also be cash-only in apply even when in-kind is permitted, as a result of APs don’t wish to maintain the underlying. Anticipate persistent huge spreads, persistent NAV reductions/premiums, and frequent creation halts when liquidity vanishes.Sure most often. With out qualifying futures or an ETF that already gives 40%+ publicity below the generic take a look at, these ETPs fall outdoors the Generic Requirements and should use the standard, slower 19b-4 path – if they’re accepted in any respect.Broad large-cap and “top-N” index ETPsGLDC-style large-cap baskets (e.g., BTC, ETH, XRP, SOL, ADA), “High 5/10 by market cap,” or “BTC+ETH+SOL” blends; most of the basket/index merchandise within the Seyffart chart sit hereCustody often consolidated with a single supplier throughout all constituents to simplify collateral and operational workflows. This amplifies the “single level of failure” drawback if a dominant custodian has an outage.Indices from CF Benchmarks, CoinDesk, Bloomberg Galaxy, Galaxy, and so on. determine inclusion guidelines, weights, and rebalancing. Underneath the Generic Requirements, each part nonetheless has to fulfill its personal surveillance/futures take a look at, so index design is constrained by what already qualifies.Extra creation/redemption line gadgets per basket, however APs can internet flows throughout parts and use in-kind baskets to scale back slippage. The principle plumbing danger is rebalance days, when a number of skinny alts should be crossed without delay.No for “plain vanilla” index trusts the place each part asset meets the Generic Requirements.Thematic / sector index ETPs“L1/L2 smart-contract index,” “DeFi blue chips,” “tokenization performs,” “meme basket,” and so on., mixing certified and non-qualified namesCustody turns into multi-provider if sure tokens are solely supported by area of interest custodians, complicating collateral administration and growing reconciliation and cyber danger.Indexers should select between thematic purity and staying contained in the generic regime. Many will publish each a broad “analysis” index and a narrower investable model.Creations get fragile as a result of APs must supply a number of illiquid names without delay. One damaged part can halt creations for the whole ETP.Usually sure. As quickly because the index holds even one asset that fails the futures/ISG take a look at, exchanges lose the generic secure harbor.Choices-overlay on single-asset BTC/ETHBuy-write BTC or ETH ETFs, buffered-loss methods, collar merchandise holding spot or futures and promoting optionsUses the identical custodians as plain BTC/ETH merchandise, however provides derivatives plumbing. Collateralization and margin turn out to be key operational dangers.Some observe buy-write indices; others are actively managed. These are now not easy commodity belief constructions.APs should handle each spot and choices liquidity. Throughout volatility spikes, creations could pause, inflicting massive NAV deviations.Sure most often. Actively managed, leveraged, or “novel characteristic” ETPs fall outdoors the Generic Requirements.Choices-overlay on multi-asset or thematic indexes“Crypto earnings” funds writing calls on baskets (BTC+ETH+SOL), volatility-targeting or risk-parity crypto ETPsRequires multi-asset custody plus derivatives infrastructure. Failures at any layer can pressure buying and selling halts.Customized indices and proprietary overlays improve differentiation however scale back comparability and platform adoption.APs face skinny alts, restricted choices markets, and complicated hedging fashions, implying excessive prices and huge spreads.Sure. These sit squarely outdoors the generic template and require full 19b-4 approval.
The cull
ETF.com tracks dozens of closures every year, with funds beneath $50 million struggling to cowl prices and sometimes shutting down inside two years.
Seyffart predicts crypto ETF liquidations by late 2026 or early 2027. Probably the most susceptible: duplicate single-asset funds with excessive charges, area of interest index merchandise, and thematic bets the place the underlying market strikes sooner than the ETF wrapper can adapt.
Charge wars speed up the cull. New Bitcoin ETFs launched in 2024 at 20-25 foundation factors, undercutting earlier filers by half. Because the shelf will get crowded, issuers will lower deeper on flagship merchandise, leaving long-tail funds unable to compete on charges or efficiency.
Secondary-market mechanics crack first on skinny underlyings. When an ETF holds a small-cap token with restricted borrow, demand spikes pressure premiums till APs supply sufficient cash.
If borrow disappears throughout volatility, the AP stops creating, and the premium persists.
A number of early crypto index ETFs noticed internet redemptions and protracted reductions as buyers caught to brand-name single-asset funds and traded round mispricings.
For BTC, ETH, and SOL, the dynamic reverses. Extra ETF wrappers deepen spot-derivative connections, tighten spreads, and reinforce their standing as core institutional collateral.
Bitwise predicts ETFs will take in greater than 100% of internet new provide in these three property, making a suggestions loop: a much bigger ETF advanced, a thicker borrow market, tighter spreads, and better enchantment to advisors prohibited from holding cash immediately.
What the foundations nonetheless gate and who decides
Generic requirements exclude actively managed, leveraged, and “novel characteristic” ETPs, which should file particular person 19b-4 proposals.
Wish to launch a passively managed spot BTC ETF? Seventy-five days. Need 2x leverage with every day resets? Again to the outdated regime.
SEC Commissioner Caroline Crenshaw warned the requirements may flood the market with merchandise that skip particular person vetting, creating correlated fragilities that regulators solely uncover in a disaster.
The principles channel the flood towards essentially the most liquid, most institutionalized corners of crypto.
The stakes are easy: does ETF-palooza consolidate crypto’s institutional infrastructure round a couple of dominant cash and custodians, or broaden entry and distribute danger?
For Bitcoin, the flood is a coronation. Each new wrapper provides one other venue for institutional capital, one other supply of borrow, one more reason for banks to construct custody.
Coinbase’s property below custody hit $300 billion within the third quarter of 2025. That scale creates community results and fragility.
For the lengthy tail, extra ETFs imply extra legitimacy but in addition extra fragmentation, thinner liquidity per product, and the next probability that any given fund will shut.
Issuers wager a couple of will stick and subsidize the remainder. APs wager they’ll extract unfold and borrow charges earlier than somebody will get caught holding an illiquid token throughout a redemption wave.
Custodians consider focus pays higher than competitors, till regulators or shoppers pressure diversification.
Generic requirements made it straightforward to launch crypto ETFs. They didn’t make it straightforward to maintain them alive.
