Crypto ETFs have big innovation opportunity in 2025, but demand may be weak

Crypto ETFs may be entering a year of innovation, with new funds and new approaches, but don’t expect demand to match what was seen in the first year of bitcoin ETFs.

Bitcoin exchange-traded funds debuted a year ago and have been hailed as one of the most successful ETF launches in history, drawing $36 billion in net new assets in their first year, led by BlackRock’s iShares Bitcoin Trust. The ETFs were a catalyst spurring institutional adoption and helped double the total market value of cryptocurrencies in 2024.

The next crypto ETFs could see weaker demand, however. Already, applications for new funds that would track Solana, XRP, Hedera (HBAR) and litecoin have been submitted but, even if approved this year, they may attract a fraction of the assets that flowed in to bitcoin ETFs, according to JPMorgan. There has also been an application for a hybrid bitcoin and ether fund.

“We don’t see a next wave of cryptocurrency [exchange-traded product] launches as being meaningful for the crypto ecosystem given much smaller market capitalization of other tokens and far lower investor interest,” JPMorgan analyst Kenneth Worthington wrote in a note Monday.

Worthington noted that assets of $108 billion in bitcoin ETFs make up 6% of total bitcoin market capitalization after the first year of trading. For ether ETFs, which launched in July with less fanfare, that percentage narrows to just 3% ($12 billion) of the coin’s market cap after six months.

Applying those “adoption rates” to Solana, which has a total $91 billion market cap, JPMorgan projects ETFs tied to the token will attract between $3 billion and $6 billion of net new assets. A fund tracking XRP, which has a market cap of $146 billion, would attract an estimated $4 billion and $8 billion in net new assets.

Worthington added that the regulatory environment – specifically, the promise of a pro-crypto Congress and White House in 2025 that the industry hopes will boost growth in crypto businesses – could shape the outlook for innovation in crypto ETFs.

“The regulatory and legislative guardrails in the U.S. … will determine the type, quantity and focus of new products and services launched,” the analyst said. “The new administration and a new SEC chairman opens the door for new opportunity in cryptocurrency innovation.”

Tyron Ross, founder and president of registered investment advisor 401 Financial, expects demand for bitcoin ETFs this year won’t live up to what was seen in 2024 but will remain “healthy.” That’s largely due to investor education and growing confidence in the 16-year-old digital asset class.

Adoption could accelerate, however, if bitcoin ETFs get added Wall Street’s to model portfolios, he said.

“None of those portfolios have crypto in them, so until crypto is in there, you’re not going to see that next leg of growth this year that you saw last year,” Ross told CNBC. “The majority of advisors buy their their models off the shelf, and those models don’t have bitcoin or crypto [exposure] in them… when that’s addressed, I think you’ll start to see that parabolic [growth] like you saw last year.”

“You can feel it across the space that some of the regulatory clouds are clearing and there’s blue skies ahead, but there needs to be tempered expectations of the ETFs in the coming year,” he added.