Will Crypto ETFs Have Lasting Appeal?

Ivan Castano, for CME Group

At a Glance

• Crypto ETFs are expected to gain traction amid regulation changes and institutional adoption
• While some say Bitcoin could enter a bear market, others expect its price will rebound amid strong momentum for crypto

Bitcoin’s price may have fallen from last year’s highs, but that’s not stopping a slew of ETFs from courting investors in hopes that the king of crypto will rebound this year.

Regulatory tailwinds, such as the SEC’s recent passage of generic listings standards (GLS) and the upcoming The Digital Asset Market Clarity (CLARITY) Act, are also expected to boost investor interest in these funds, which raised a whopping $47.2 billion last year, despite $5 billion of withdrawals in the fourth quarter. 

Traditional finance (TradFi) remains bullish on digital currencies and many institutions are set to enter the space in coming months, potentially helping ETF inflows to more than double in 2026, analysts say.

“We will absolutely see more inflows this year,” said Chris Matta, CEO of consultancy Cryptocollective.io, adding that he expects 25 to 50 new such funds to launch this year. “Though BTC went from roughly $120,000 to $90,000 last year, you still had a huge amount of inflows.” 

Institutions such as banks and asset managers have warmed up to digital currencies amid Washington’s policy changes and GLS’s roll out. The provisions have been a boon to the $3.3 trillion industry, sharply streamlining ETF listings and sparking a second wave of applications featuring popular altcoins such as Doge, Cardano and Polkadot.

This momentum is also being reflected in the derivatives market. In February, CME Group expanded its Crypto derivatives suite with the launch of Cardano, Chainlink and Stellar futures. This comes off the back of a year of records for the exchange’s Crypto product suite, with total notional volume up 75% in 2025 vs 2024.

Regulatory Shifts

Before GLS, crypto ETFs were treated as “special cases” requiring cumbersome filings subject to long delays. Under the new rules, if a crypto asset meets certain pre-set criteria, an exchange can list it within five days and without an SEC vote.

GLS requires a coin to be traded as a futures asset for at least six months, have a 12-month average liquidity of $700 million and be part of the fraud-preventing Intermarket Surveillance Group (ISG) to gain approval. 

The regulation has encouraged a string of banks, such as Morgan Stanley and Goldman Sachs, to launch their own crypto ETFs. It has also given rise to so-called basket ETFs incorporating diverse coins, with the Nasdaq Crypto US Index (NCIUS) (which holds Bitcoin, Ethereum, Solana, XRP, Cardano and more) being a key example. In January of this year, it was announced that the Nasdaq Crypto US Index would become the Nasdaq CME Crypto Index (NCI). 

“The announcement brings together two of the world’s most trusted market infrastructure providers at a pivotal moment for the digital asset ecosystem, as renewed investor confidence and clearer regulatory frameworks accelerate institutional participation,” the Nasdaq Newsroom reported.

Institutional Adoption

Meanwhile, U.S. banks and asset managers have begun advising clients to hold crypto as part of a diversified portfolio.

The latest is Bank of America, which is allowing its network of 15,000 advisors to recommend spot Bitcoin ETFs. It is also advising clients to hold 1% to 4% of total assets in crypto, following on the heels of similar moves by Morgan Stanley, Fidelity, JP Morgan and Wells Fargo.

Morgan Stanley recently announced the launch of a Solana ETF with staking rewards. Called the Morgan Stanley Solana Trust, the vehicle pays 6.5% to 7.7% annually into the fund. ETF issuers are adding proof of stake (PoS) rewards that help run coin networks to boost their funds’ appeal. These can be paid into the fund or through an annual investor dividend. 

The SEC is currently reviewing applications for a handful of other vehicles, including those for Doge, Cardano, Polkadot and Avalanche. As one of the first major altcoins, Cardano is known for its ultra-secure network and reliable ‘liquid staking.’ Meanwhile, Polkadot and Avalanche distinguish themselves by offering faster transaction speeds, lower costs and higher staking rewards.

Clarity in Focus

Looking at future regulations, all eyes are currently set on the CLARITY Act, the administration’s latest regulation that could benefit crypto, which is currently in Congress.

Within CLARITY, digital assets will be classified as “Digital Commodities” under the CFTC instead of as “securities” under the SEC’s purview. This means fund issuers won’t have to worry about being sued for holding ‘unregistered securities.’ The provision also lowers the regulatory burden for banks to hold crypto ETFs as custodians, encouraging conservative pension funds and sovereign wealth funds to enter the space, experts say. CLARITY also calls for ETFs to be treated like stablecoins, enabling real time, 24/7 settlement. 

“CLARITY is going to help bolster trading and custody for Bitcoin,” said Bitcoin consultant Mark Connors. “As banks begin to act as custodians, they will get their trading, research and advisory arms behind the business, deepening adoption.”

CLARITY is facing some speed bumps, however. The Senate rejected it on January 16 over a dispute concerning stablecoin yields, casting uncertainty on whether it will be legislated before the U.S.’s mid-term elections. 

Crypto-focused lawyer Carol Van Cleef said the CLARITY Act’s delay is unlikely to dent Bitcoin’s long-term prospects. She added that other factors, such as volatility surrounding U.S. foreign policy, could play a bigger role.

“CLARITY will give Bitcoin a shot in the arm but there are so many factors in the environment that could affect its price,” she said. “We have seen a lot of technological developments and use cases have exploded in the last few years, all without a major overhaul of the regulatory structures.”

If CLARITY passes and other crypto catalysts, such as the U.S.’s growing twin deficits – simultaneous budget and trade deficits – and expectations of two more rate cuts this year, materialize, Bitcoin could reverse course.

Amid this potential momentum, Connors forecasts that ETF inflows could gain 1x to 1.5x this year. And in 2027, as more institutions and sovereign wealth funds move into the space, they could swell by 1.5x to 2x, he said.

Last year, sovereign funds, notably Qatar’s (QIA), Norway’s NBIM and Abu Dhabi’s ADIA/Mubdala, purchased BTC directly or via stakes in BTC proxies like MicroStrategy. Analysts expect the trend to continue over the next 12-24 months. 

Bear Market?

But critics say not so fast.

In a recent report, CryptoQuant said Bitcoin has entered a bear market, adding that spot Bitcoin funds cut their holdings by about 24,000 BTC in the fourth quarter of 2025 and that it doesn’t expect those flows to recover fast.

Bitcoin fell below its 365-day moving average ($101,000) last November, a level the consultancy said has historically signaled a bear market. Even after bouncing roughly 21% by early January, it still remained technically under water, the consultancy added. 

But Kat Liu, a portfolio manager at ETF manager Ipox Schuster, is unconcerned. 

“If it doesn’t go lower than $60,000, I wouldn’t worry,” she said. “BTC is less speculative than five years ago. Institutional investors, pension funds and hedge funds still want to get in.”

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