After a surge and subsequent crash in the cryptocurrency market, approximately 130 "altcoin-related ETFs" are waiting for approval to be listed on the US stock market

As cryptocurrency prices soared, Wall Street quickly took action, with issuers rushing to submit an astonishing number of altcoin ETF applications, attempting to package these highly volatile, lightly traded speculative tokens into regulated financial products. However, the recent crash has caused billions of dollars in market value to evaporate from the cryptocurrency market, exposing the fragility of this strategy.

On October 18, it was reported that as speculative fervor drove altcoin prices to new heights, Wall Street swiftly entered the fray. Data compiled by Bloomberg shows that approximately 130 ETF applications related to small cryptocurrencies are currently awaiting approval from the U.S. Securities and Exchange Commission (SEC), covering tokens such as Polkadot, Chainlink, and the meme coin Pengu associated with Pudgy Penguins.

However, the recent severe sell-off in the cryptocurrency market has doused the previous exuberance with cold water. The recent crash in cryptocurrencies is far less chaotic than the 2022 digital asset crisis, but it still sends a warning. New concerns about pressure in the credit markets led to another drop in cryptocurrency prices on Friday (October 17), with the altcoin index falling by as much as 11%, reaching its lowest level since April.

Some tokens have dropped 70% in the past week, as liquidity dried up and buying interest vanished. All of this serves as a clear reminder to investors of how quickly the entire speculative token ecosystem can evaporate. Analysts point out that this sudden market turmoil has also put issuers attempting to package altcoins into compliant financial products in an awkward position. These ETF applications submitted during the market's euphoric phase are now facing serious scrutiny regarding the stability and liquidity of their underlying assets.

Regulatory Easing Sparks Application Surge

Many ETF applications were submitted months ago when market sentiment was optimistic, with issuers betting that retail investors' risk appetite would persist.

In the loose regulatory environment under the Trump administration, issuers became bolder, encouraged by the White House's tolerant stance on digital assets. Some applications even included double-leveraged instruments linked to cryptocurrencies associated with Trump and Melania.

Jane Edmondson, head of index product strategy at TMX VettaFi, stated, "While it's difficult to predict altcoin winners, issuers are seizing the opportunity presented by a more favorable regulatory environment for crypto products."

However, she remains cautious about whether this wave of applications corresponds to the level of investor interest, saying, "That remains to be seen."

Nonetheless, the current clear stance of regulators may take time to materialize. Due to the government shutdown, the SEC has been closed for over a week, potentially pausing the approval process for pending applications.

Structural Fragility of Underlying Assets

Although the ETF shell appears attractive, the underlying assets remain highly speculative, structurally reliant on rapid capital flows, retail rotation, and viral momentum. Whether these forces can be replicated in fund form remains untested.

Ilan Solot, senior global market strategist at Marex Solutions, identified significant obstacles to packaging altcoins into ETFs even before the crash—ranging from shallow liquidity and token dilution to small market capitalization

"We have seen the frenzy of new applications, many suppliers think it's party time, but after the crash, it will become more difficult. Thousands of ETFs have been launched with no sustainability. I doubt that only a few of these products will see meaningful inflows."

The timing of this crash has intensified concerns about the disconnect between regulatory approval and investor protection. As the SEC weighs whether to approve more altcoin ETFs, the backdrop is the massive losses suffered by retail traders—many of whom were lured by speculative fervor, only to watch their holdings shrink.

Critics argue that the current laissez-faire stance may cloak higher-risk tokens in institutional legitimacy, while their structural vulnerabilities have only recently been exposed.

The Market Will Determine Product Value

Of course, incorporating altcoins into a regulated ETF framework could also provide a safer avenue for retail traders seeking exposure to high-risk assets like meme coins.

Unlike offshore exchanges or leveraged derivatives, ETFs can offer clearer information disclosure, custodial protection, and standardized risk descriptions, with the potential to bring more transparency to this notoriously opaque corner of the cryptocurrency market.

James Seyffart, an ETF analyst at Bloomberg Industry Research, described this phenomenon as the ETF industry's "spaghetti cannon" strategy—"They will launch a lot of these products and then see which ones stick to the wall." He added:

"It's likely that many products will ultimately 'hit the fan,' but in the end, the market and investors will decide which products can create value."