Introduction

1.1 Research Background and Objectives

In recent years, the cryptocurrency market has experienced rapid development and expansion, from the birth of early Bitcoin opening the era of decentralized digital currency, to the diverse cryptocurrencies such as Ethereum blossoming today, cryptocurrency has gradually become an integral part of the global financial sector. Its market size continues to expand, and trading activity remains active, attracting the attention of a large number of investors. However, the high volatility and complexity of the cryptocurrency market also bring significant risks and challenges to investors.

Against this background, Crypto ETFs (Cryptocurrency Exchange Traded Funds) have emerged. As an innovative financial tool, Crypto ETFs provide investors with a more convenient, cost-effective, and relatively secure way to participate in the cryptocurrency market. It allows investors to gain exposure to the market without directly holding cryptocurrencies, effectively reducing investment barriers and technical complexities, while also diversifying risks to some extent.

This study aims to delve into the current development of Crypto ETF, including its issuance status, market performance, and investor participation on a global scale. Through in-depth research on Crypto ETF, analyze the various regulatory, market, and technological issues it faces, and make reasonable predictions about its future development prospects, providing valuable reference for investors, regulatory agencies, and relevant practitioners to promote the healthy and stable development of the Crypto ETF market.

Basic Concepts of Crypto ETF

2.1 Crypto ETF Definition and Connotation

Crypto ETF, or cryptocurrency exchange-traded fund, is a financial instrument that tracks the performance of cryptocurrency assets. It is traded on stock exchanges, allowing investors to trade conveniently on the secondary market, similar to buying and selling stocks. Like traditional ETFs, the shares of Crypto ETF represent the ownership of a basket of cryptocurrency assets or specific cryptocurrencies, and their prices closely follow the market price changes of the tracked cryptocurrencies.

The core value of Crypto ETF is to provide investors with an indirect way to invest in cryptocurrencies. Investors can participate in the cryptocurrency market without directly purchasing, storing, and managing cryptocurrencies, effectively reducing the investment threshold and technical difficulty. For example, when investors buy Bitcoin ETF, it is equivalent to indirectly holding Bitcoin, and their returns are related to the price trend of Bitcoin. This method allows investors who are interested in cryptocurrencies but have concerns about direct investment due to factors such as technology, security, or regulation to also share the potential benefits of the cryptocurrency market.

Comparison analysis between 2.2 and traditional ETF

From the perspective of asset targets, traditional ETFs have a wide range of investment targets, covering various traditional asset categories such as stocks, bonds, commodities, etc. For example, an ETF tracking the S&P 500 Index includes the 500 component stocks of the S&P 500 Index; a gold ETF mainly holds physical gold or gold futures contracts. In contrast, the asset target of a Crypto ETF is only cryptocurrencies, such as Bitcoin ETF, Ethereum ETF, etc., focusing on the market performance of specific cryptocurrencies.

In terms of regulatory environment, traditional ETFs have developed a relatively complete and mature regulatory system after a long period of development. Taking the United States as an example, it is subject to strict regulations by the Securities and Exchange Commission (SEC) in terms of information disclosure, investment restrictions, custody requirements, etc., with clear provisions aimed at protecting investors’ interests and maintaining market stability. In comparison, Crypto ETFs are still in the exploration and improvement stage due to the novelty and complexity of the cryptocurrency market. Different countries and regions have significant differences in their regulatory attitudes and policies towards Crypto ETFs, with some countries being cautious and even implementing strict restrictions, while others are relatively open and actively promoting their development.

In terms of trading mechanisms, the trading hours of traditional ETFs usually align with the operating hours of stock exchanges. For example, on the New York Stock Exchange, trading hours are from 9:30 a.m. to 4:00 p.m. Monday to Friday. Settlement is generally T+1 or T+2, meaning the delivery of funds and securities is completed on the next working day or two after the trade is executed. In contrast, Crypto ETFs offer more flexible trading hours, with some products supporting 24/7 trading, in line with the round-the-clock nature of the cryptocurrency market. In terms of settlement, due to the decentralized and digital nature of cryptocurrencies, settlement speeds are relatively faster, with some using instant settlement. However, this also poses higher network security risks.

2.3 Main Type Division

Bitcoin ETF is the most common and well-known type of Crypto ETF in the market. As Bitcoin is the earliest and largest cryptocurrency in terms of market capitalization, it has high market recognition and liquidity. Bitcoin ETF aims to track the price performance of Bitcoin. Investors indirectly benefit from the price fluctuations of Bitcoin by purchasing shares of Bitcoin ETF. Its characteristic lies in its high focus on Bitcoin as a single asset, which can intuitively reflect the changes in the Bitcoin market. The investment value mainly comes from Bitcoin’s leading position in the cryptocurrency market and its unique characteristics such as decentralization and limited supply, attracting a large number of investors who are optimistic about Bitcoin’s long-term development.

The Ethereum ETF is based on Ethereum as the underlying asset. Ethereum is not only a cryptocurrency, but also a smart contract platform with a rich ecosystem, including numerous decentralized applications (DApps), decentralized finance (DeFi) projects, and more. The unique feature of the Ethereum ETF is that it not only reflects the price fluctuations of Ethereum, but also allows investors to indirectly participate in the development of the Ethereum ecosystem. Its investment value lies in the continuous innovation and expansion of the Ethereum ecosystem, as well as the potential of Ethereum in the expansion of blockchain technology applications, attracting investors interested in the prospects of blockchain technology applications.

In addition to single cryptocurrency ETFs, there are various cryptocurrency ETFs that hold a variety of different cryptocurrencies. By diversifying investments in multiple cryptocurrencies, these ETFs reduce the risk brought by the price fluctuations of a single cryptocurrency, achieving portfolio diversification. For example, some diversified cryptocurrency ETFs may simultaneously invest in Bitcoin, Ethereum, and other promising emerging cryptocurrencies, dynamically adjusting based on the market performance and development prospects of different cryptocurrencies. The investment value lies in providing investors with a more comprehensive exposure to the cryptocurrency market, reducing risk through diversification, suitable for investors who wish to diversify their investments in the cryptocurrency market, balancing risk and returns.

Development Process and Current Situation

3.1 Origin and Early Exploration

The concept of Crypto ETF can be traced back to as early as 2013 when the Winklevoss brothers (Cameron Winklevoss and Tyler Winklevoss) announced plans to launch a Bitcoin ETF, aiming to allow investors to indirectly invest in Bitcoin through traditional securities markets. This idea attracted widespread attention in the market at the time and was seen as an important bridge connecting traditional finance with the emerging cryptocurrency market. However, in 2014, the ETF application was rejected by the U.S. Securities and Exchange Commission (SEC). The SEC’s main concerns were the risks of price manipulation in the Bitcoin market, inadequate market regulation, and insufficient investor protection measures. This rejection also cast a shadow over the development of early Crypto ETFs.

Subsequently, many institutions have attempted to apply for Crypto ETFs, but have encountered numerous obstacles. In 2016, SolidX’s application for a bitcoin ETF was rejected; in 2017, the price of bitcoin fluctuated dramatically, soaring from $789 at the beginning of the year to $18,674 at the end of the year. This year became a peak period for Crypto ETF applications. Six institutions, including BTC Investment Trust, VanEck, Exchange Listed Funds Trust, Pro Shares, REX BTC, and First Trust, submitted applications, but were ultimately rejected or voluntarily withdrawn by the SEC for various reasons. During the SEC’s review process, it focused on issues such as the high volatility of the cryptocurrency market, the lack of effective regulatory mechanisms, and the opacity of trading. These factors have made it difficult for early Crypto ETFs to break through regulatory barriers and enter the market.

3.2 Breakthroughs and Progress in Recent Years

2024 is a key turning point in the development of Crypto ETFs. On January 10th, the U.S. Securities and Exchange Commission approved the listing of 11 Bitcoin spot ETFs, marking the official recognition of Bitcoin in the traditional financial market and providing investors with a more convenient and compliant investment channel. The approval of Bitcoin spot ETFs allows investors to participate in the Bitcoin market through a securities account without directly holding Bitcoin, reducing the investment threshold and technological difficulty, attracting a lot of attention from traditional financial institutions and retail investors.

On May 23 of the same year, the U.S. SEC approved the listing and trading of Ethereum ETFs on multiple securities trading platforms. Prior to this, the U.S. had only approved trading of Ethereum futures ETFs. The approval of Ethereum spot ETFs further enriches the variety of Crypto ETF products, improving the cryptocurrency investment ecosystem. These ETFs will be traded on multiple platforms such as the New York Stock Exchange Arca, Nasdaq, and the Chicago Options Exchange BZX, providing investors with more choices and convenience.

The approval of Bitcoin and Ethereum spot ETFs has had a profound impact on the cryptocurrency market. On the one hand, a large amount of funds pouring in, driving up the prices of Bitcoin and Ethereum. Since the approval of Bitcoin spot ETF, the price of Bitcoin has risen by over 50% in less than a month; after the approval of Ethereum spot ETF, the market’s enthusiasm for investing in Ethereum has also significantly increased, with analysts predicting that the price of Ether may rise by 60% after the ETF products are listed, soaring to around $6,000. On the other hand, it has enhanced the compliance and recognition of the cryptocurrency market, attracting more traditional financial institutions to participate, accelerating the integration of the cryptocurrency market with the traditional financial market.

3.3 Global Market Distribution Pattern

The United States dominates the Crypto ETF market. Since the approval of Bitcoin and Ethereum spot ETFs in 2024, the market has rapidly expanded. Products such as BlackRock’s spot BTC ETF IBIT and Fidelity’s spot BTC ETF FBTC have attracted a large inflow of funds. As of July 2024, the US spot Bitcoin ETF holds $50 billion worth of BTC, with an average daily trading volume of $100 million. With its sound financial infrastructure, massive investor base, and relatively open regulatory attitude, the US market has become fertile ground for the development of Crypto ETFs.

Canada is also one of the regions where Crypto ETFs developed early. As early as 2021, it launched Bitcoin ETFs such as Purpose BTC ETF, 3iQ CoinShares BTC ETF, etc. These ETFs have achieved a certain level of success in the Canadian market, providing investors with a way to participate in the cryptocurrency market. Canadian regulatory agencies have a relatively open attitude towards Crypto ETFs, allowing their development within a compliance framework, making Canada one of the most active countries in the development of Crypto ETFs in the North American region, apart from the United States.

The Hong Kong region has also made significant progress in the field of Crypto ETFs. On April 30, 2024, the Bosera HashKey Bitcoin ETF (3008.HK）、Huaxia Bitcoin ETF（3042.HK）、CSBTC Spot ETF（3439.HKSix virtual asset spot ETFs, including [ETF] have been officially listed and traded on the Hong Kong Stock Exchange. Although the initial trading volume is relatively low compared to the U.S. market, the impact on the local financial market in Hong Kong is significant in relative terms. As of May 23, 2024, the total AUM of the six Hong Kong virtual asset spot ETFs exceeded 300 million US dollars, with the Bitcoin spot ETF holding a total of 3660 BTC and a total net asset value of 254 million US dollars. Hong Kong, as a financial center in Asia, not only provides more investment choices for local investors in the Crypto ETF field but also helps enhance Hong Kong’s influence in the global cryptocurrency financial sector.

3.4 Typical Case Analysis — Southern Dongying Bitcoin Futures ETF

South East England Bitcoin Futures ETF (code: 3066.HKIt is a representative Crypto ETF product in the Hong Kong market. The ETF mainly invests in Bitcoin futures on the Chicago Mercantile Exchange (CME), tracks the price trend of Bitcoin by holding Bitcoin futures contracts, and does not directly hold Bitcoin. This investment method to some extent reduces the storage and security risks of directly holding Bitcoin, while also utilizing the liquidity and maturity of the CME Bitcoin futures market.

In terms of product advantages, the South East England Bitcoin Futures ETF has high liquidity, traded on the main board market of the Hong Kong Stock Exchange, making it convenient for investors to buy and sell at any time. With a management fee of 1.99%, it is relatively transparent, allowing investors to better control investment costs. The ETF also has intraday trading characteristics, suitable for investors keen on short-term operations, who can profit quickly by utilizing daily market fluctuations through intraday trading strategies.

From the market performance perspective, the Southern Dongying Bitcoin Futures ETF has shown active performance in the market. During the Bitcoin price fluctuations in 2024, the net asset value of the ETF also fluctuated, providing corresponding investment opportunities for investors. During the rise in Bitcoin prices, the ETF price also showed an upward trend, bringing profits to investors; during price declines, investors can reduce losses through reasonable trading strategies such as timely stop-loss or reverse operations. In terms of trading volume, since the listing of spot ETFs for over a week (April 30 to May 9), the daily average trading volume of the Southern Dongying Bitcoin Futures ETF reached 60.71 million yuan, ranking first among all virtual asset ETFs, accounting for 50%, demonstrating its relatively high recognition and attractiveness in the market. In terms of market influence, the successful issuance and trading of the Southern Dongying Bitcoin Futures ETF not only provide Hong Kong investors with convenient tools to participate in the Bitcoin market but also serve as a demonstration for the development of the Hong Kong cryptocurrency financial market, attracting more investors’ attention to the Hong Kong Crypto ETF market, promoting the development and improvement of related markets.

Market Performance and Investment Analysis

4.1 Market Size and Growth Trends

Since the approval of Bitcoin and Ethereum spot ETFs in the United States in 2024, the Crypto ETF market has experienced explosive growth. According to Bloomberg data, as of November 2024, the global assets under management (AUM) of Crypto ETFs have surpassed the $100 billion mark, reaching $105 billion, an increase of 950% from the $10 billion at the beginning of the year. Among them, the U.S. market dominates the Crypto ETF market with assets under management reaching $85 billion, accounting for 80.95% of the global market share.

From the perspective of growth trends, from January to March 2024, with the approval and listing of Bitcoin spot ETF, funds quickly flowed into the market, and the global Crypto ETF’s assets under management grew by 300% in these three months. In the week following the approval of the Bitcoin spot ETF, funds flowing into these ETFs reached $5 billion, demonstrating a strong market demand for Crypto ETFs. After the approval of the Ethereum spot ETF in May 2024, market growth was once again driven, with global Crypto ETF assets under management increasing by $15 billion in that month.

Bitcoin ETF holds the largest share in the market size. As of November 2024, the assets under management of Bitcoin ETF reached $700 billion, accounting for 66.67% of the global Crypto ETF market share. The assets under management of Ethereum ETF are $200 billion, accounting for 19.05%. Other types of Crypto ETFs, such as diversified cryptocurrency ETFs, have relatively smaller assets under management, totaling 14.28%. This market share distribution is mainly due to the leading positions of Bitcoin and Ethereum in the cryptocurrency market, with large market capitalization and high liquidity, attracting more attention and investment from investors.

4.2 Capital Inflow and Outflow

At different times, the fund inflows and outflows of Crypto ETFs show significant changes. After the approval of the Bitcoin spot ETF in January 2024, it ushered in a peak period of fund inflows. Taking BlackRock’s spot BTC ETF IBIT as an example, in the first two months after listing, the net inflow of funds reached $15 billion, with a daily average net inflow of over $250 million. The main reason for the large influx of funds during this period is the approval of the Bitcoin spot ETF, providing investors with a legal and compliant investment channel, attracting participation from a large number of traditional financial institutions and retail investors. Many investors are optimistic about the long-term development potential of Bitcoin and indirectly invest in Bitcoin through purchasing Bitcoin ETFs.

In July and August 2024, there was a certain degree of capital outflow in the market. During this period, the global Crypto ETF saw a net outflow of $3 billion, with Bitcoin ETF experiencing a net outflow of $2 billion and Ethereum ETF seeing a net outflow of $800 million. The main reason for the capital outflow was the significant price fluctuations in the cryptocurrency market, with Bitcoin and Ethereum prices dropping by around 15% during this period. Investors became concerned about the market outlook and chose to redeem ETF shares to mitigate risks. The unstable global macroeconomic situation led some investors to shift funds to safer traditional assets, resulting in the outflow of Crypto ETF funds.

The inflow and outflow of funds have various effects on the market. When a large amount of funds flows in, it drives up the price of Crypto ETF, which in turn leads to an increase in the prices of the cryptocurrency market. Taking Bitcoin as an example, after the approval of Bitcoin spot ETF in January 2024, there was a peak in the inflow of funds, and the price of Bitcoin rose by 30% within a month, from $40,000 to $52,000. This is because the influx of funds increases the market’s demand for cryptocurrencies, leading to a supply shortage and price increases. At the same time, the inflow of funds also increases market liquidity and activity, attracting more investors to participate and further driving market development.

Conversely, when funds flow out, it will cause the price of Crypto ETF to fall, forming downward pressure on the cryptocurrency market prices. During the outflow period from July to August 2024, the price of Bitcoin continued to decline, and market panic spread. Fund outflows may also trigger a chain reaction in the market, as some investors may further sell off due to concerns about asset shrinkage, exacerbating market instability.

4.3 Investment Returns and Risk Assessment

From the perspective of investment returns, the return of Crypto ETF is closely related to the price trend of the tracked cryptocurrency. Taking 2024 as an example, the spot price of Bitcoin ETF brought significant returns to investors during the rising phase of Bitcoin prices. From January to April 2024, the price of Bitcoin rose from $40,000 to $65,000, during which the net value of the Bitcoin ETF increased by 50%, achieving considerable investment returns for investors. Ethereum ETF also performed well when the price of Ethereum rose, such as after the approval of the Ethereum spot ETF in May 2024, the price of Ethereum rose by 20% within a month, and the net value of the Ethereum ETF correspondingly increased, bringing returns to investors.

However, investing in Crypto ETFs also faces many risks. Market risk is the primary risk, as the cryptocurrency market is highly volatile, and prices are influenced by various factors such as market supply and demand, macroeconomic conditions, and changes in policies and regulations. In 2022, due to the unstable global macroeconomic situation and the Fed’s interest rate hike leading to tightened market liquidity, the price of Bitcoin plummeted from $47,000 at the beginning of the year to $16,000 at the end of the year, a drop of over 60%. During the same period, the net value of Bitcoin ETFs also plummeted significantly, causing investors to suffer significant losses.

Regulatory risks are also not to be ignored. The regulation of the cryptocurrency market is still imperfect, and there are significant differences in regulatory policies among different countries and regions. In 2021, China comprehensively banned virtual currency-related business activities, including trading speculation of virtual currency, ICOs, etc. This policy led to the closure of a large number of cryptocurrency trading platforms, spreading market panic, and causing a sharp decline in the prices of cryptocurrencies such as Bitcoin, which had a huge impact on investors in Crypto ETFs. In 2024, the U.S. Securities and Exchange Commission (SEC) continues to strictly regulate Crypto ETFs, and any changes in its policies may affect the issuance, trading, and operation of Crypto ETFs, thereby impacting investors’ returns.

Technical risks are also prominent. Crypto ETFs rely on blockchain technology and digital trading systems, and network security issues may lead to investor asset losses. In 2014, Japan’s largest Bitcoin exchange Mt.Gox was hacked, resulting in the theft of about 850,000 bitcoins worth about $473 million. This event triggered market panic, causing a sharp drop in Bitcoin prices and also raising concerns about the security of the cryptocurrency market, impacting investor confidence in related Crypto ETFs. In addition, the stability and scalability of blockchain technology also need to be improved. For example, Ethereum experienced network congestion and soaring transaction fees during peak trading periods, affecting the trading efficiency and investor experience of Ethereum ETFs.

Opportunities and Challenges Ahead

5.1 Opportunity Analysis

5.1.1 Trend of Convergence between Traditional Finance and Cryptocurrency Markets

In recent years, traditional financial institutions have significantly increased their participation in the cryptocurrency market, becoming an important force driving the development of Crypto ETFs. Global renowned financial giants such as BlackRock and Fidelity have entered the field of Crypto ETFs. BlackRock’s spot BTC ETF IBIT, with its extensive influence in the global financial market and huge customer base, has attracted a large amount of capital inflow. Since its listing, its assets under management have grown rapidly, reaching $53 billion as of November 2024, making it one of the largest Bitcoin ETFs in the market. Fidelity’s spot BTC ETF FBTC has also performed well, with a high inflow of funds and assets under management reaching $15 billion.

The participation of these traditional financial institutions has brought about multiple positive impacts on the Crypto ETF market. Leveraging their abundant financial experience and professional investment management capabilities, they provide more robust guarantees for the operation of Crypto ETFs. In terms of product design, they are able to fully consider investors’ risk preferences and return expectations, optimize investment portfolios, and enhance the attractiveness of the products. In terms of risk management, the use of advanced risk assessment models and strict risk control measures effectively reduce the impact of market fluctuations on ETFs, enhancing investor confidence. The endorsement of traditional financial institutions and their extensive sales channels have greatly expanded the market coverage of Crypto ETFs, attracting more attention and participation from institutional and retail investors, injecting a large amount of capital into the market, and enhancing market liquidity and activity.

5.1.2 The regulatory environment is gradually becoming clearer

Global, the regulatory environment of the cryptocurrency market is gradually becoming clear from vague, providing strong support for the development of Crypto ETF. The U.S. Securities and Exchange Commission (SEC) approved the listing of Bitcoin and Ethereum spot ETFs in 2024, a decision that is of landmark significance. It clarifies the regulatory authority’s attitude towards Crypto ETFs and provides important references for the formulation of regulatory policies in other countries and regions. During the approval process, the SEC has established strict standards and requirements for the compliance, investor protection, and prevention of market manipulation of the ETF, prompting ETF issuers to continuously improve product design and operational management, and enhance market transparency and standardization.

Other countries and regions are also actively exploring and improving cryptocurrency regulatory policies, creating a favorable environment for the development of Crypto ETFs. The EU’s Markets in Crypto-Assets Regulation (MiCA) is being implemented in phases, providing a unified framework for the issuance, trading, and regulation of crypto assets, clarifying the legal status and regulatory requirements of cryptocurrencies, helping to reduce market uncertainty, and promoting the development of Crypto ETFs in the EU. In the Hong Kong region, a series of regulatory policies on crypto assets were issued between 2023 and 2024, including listing guidelines for virtual asset spot ETFs, enabling Crypto ETFs in the Hong Kong market to develop in an orderly manner within a compliant framework, attracting multiple fund management companies to launch related products.

The clarification of the regulatory environment has played a positive role in the development of Crypto ETFs. It has enhanced investors’ confidence, making more investors willing to participate in the Crypto ETF market. Clear regulatory rules reduce market uncertainty and risk, and reduce potential legal disputes and market manipulation, laying a solid foundation for the long-term stable development of the Crypto ETF market.

5.1.3 Market demand growth

With the continuous development and popularization of the cryptocurrency market, investors’ demand for cryptocurrency investment continues to rise, providing a broad market space for the development of Crypto ETFs. On the one hand, as an emerging asset class, cryptocurrencies have unique investment characteristics, such as decentralization and the potential for high returns brought by high volatility, which have attracted a large number of investors pursuing high-risk, high-return investments. Over the past decade, the price of Bitcoin has risen sharply, and its market value has continued to climb, reaching a peak of over 1 trillion U.S. dollars, sparking investors’ enthusiasm for cryptocurrency investment.

On the other hand, the investor structure is becoming increasingly diverse. In addition to traditional retail investors and early cryptocurrency enthusiasts, more and more institutional investors are also starting to pay attention to and participate in the cryptocurrency market. According to statistics, by 2024, approximately 30% of hedge funds, 20% of family offices, and 10% of pension funds globally have allocated a certain percentage of cryptocurrency assets. These institutional investors, with their large capital size and professional investment teams, are continuously enhancing their influence in the cryptocurrency market. By investing in Crypto ETFs, they can participate in cryptocurrency market investments while leveraging the advantages of ETFs, such as convenient trading, lower costs, risk diversification, etc., to meet their investment needs.

To meet the needs of different investors, Crypto ETF products continue to innovate and enrich. In addition to common Bitcoin ETFs and Ethereum ETFs, there are also various cryptocurrency ETFs, as well as theme ETFs related to cryptocurrencies. Some ETF issuers have introduced theme ETFs based on blockchain technology applications, investing in companies related to blockchain technology research and development, application scenario expansion, etc., providing investors with a wider range of investment choices and further driving the development of the Crypto ETF market.

5.2 Challenge Analysis

5.2.1 High Volatility in the Cryptocurrency Market

The cryptocurrency market is famous for its high volatility, which brings many risks and challenges to Crypto ETFs. The price of Bitcoin has experienced significant ups and downs in the past few years. From 2020 to 2021, the price of Bitcoin soared from around $7,000 to $69,000, an increase of over 880%; while from 2022 to 2023, it dropped from $69,000 to $16,000, a decrease of over 76%. This drastic price fluctuation directly impacts the net asset value performance of Crypto ETFs.

When the price of cryptocurrency rises sharply, the net value of Crypto ETF also rises, bringing lucrative returns to investors; however, in the event of a price decline, the net value of the ETF will also shrink significantly, exposing investors to substantial asset loss risks. During the cryptocurrency market crash in 2022, the net value of Bitcoin ETF generally plummeted by over 70%, causing significant losses for many investors. Price fluctuations can also lead to emotional swings among investors, triggering market panic. When the market experiences a sharp decline, investors may redeem a large number of ETF shares out of fear, leading to redemption pressure on the ETF and affecting its normal operation. Frequent price fluctuations also increase the difficulty of ETF investment management, requiring fund managers to continuously adjust investment strategies to cope with market changes, placing extremely high demands on their professional and market judgment capabilities.

Despite the enormous volatility and uncertainty facing the cryptocurrency market represented by BTC, the long-term development of BTC is still favored by the majority of cryptocurrency enthusiasts. According to Gate.io’s AI large model prediction, BTC’s market still has a decent increase in the future.

Image Source: Gate.io AI Big Model

5.2.2 Regulatory Uncertainty

Although the global regulatory environment is gradually becoming clearer, there are still significant differences in the regulatory policies on cryptocurrencies and Crypto ETFs among different countries and regions, which brings uncertainty to the development of Crypto ETFs. In the United States, although the SEC has approved the listing of Bitcoin and Ethereum spot ETFs, regulatory agencies remain cautious towards the cryptocurrency market, with strict regulatory scrutiny on ETFs, and policies may change at any time. In 2024, the SEC proposed new requirements for the trading rules and information disclosure of some Crypto ETFs, leading to a certain degree of market volatility.

In some countries, such as China, all virtual currency-related business activities, including virtual currency trading speculation, ICO, etc., are completely banned, making it impossible for Crypto ETF to exist and develop legally in these regions. The Financial Services Agency of Japan (FSA) holds an extremely cautious attitude towards approving cryptocurrency spot ETF products, emphasizing the need for rigorous assessment and consideration, which poses a significant obstacle to the development of Crypto ETF in the Japanese market. Differences and changes in regulatory policies may lead to various difficulties for Crypto ETF in cross-border issuance, trading, and investment. Regulatory requirements vary in different countries, and ETF issuers need to meet the regulatory standards of multiple countries and regions, increasing operational costs and compliance difficulties. Sudden changes in regulatory policies may expose already issued Crypto ETF to compliance risks, and even suspend or terminate trading, causing losses to investors.

Predictions of Future Development Trends

6.1 Product Innovation Direction

In the future, the product innovation of Crypto ETF will focus on new cryptocurrency targets and composite products. With the continuous development of the cryptocurrency market, more and more cryptocurrencies with unique value are emerging. In addition to Bitcoin and Ethereum, cryptocurrencies such as Ripple (XRP), Litecoin (LTC), Solana (SOL), etc., are also playing important roles in their respective fields. Taking Ripple as an example, it focuses on the field of cross-border payments, and through cooperation with multiple global financial institutions, it is committed to building an efficient and low-cost international remittance network, with high market potential and the possibility of becoming a new Crypto ETF target.

In terms of composite products, ETFs combining cryptocurrency and traditional financial assets will become an innovative hot spot. For example, an ETF that combines Bitcoin with gold allows investors to achieve diversified asset allocation through a single fund, simultaneously gaining the high growth potential of Bitcoin and the hedging and value-preserving properties of gold. This type of composite ETF not only meets investors’ investment needs for different assets, but also reduces risk through asset allocation, enhancing investment stability. There may also be ETFs that combine cryptocurrency with stock indices, such as an ETF that combines Bitcoin with the S&P 500 index, allowing investors to share the benefits of both the cryptocurrency market and the traditional stock market, providing investors with a richer range of investment choices.

6.2 Market Size Forecast

From the market trend perspective, the Crypto ETF market is expected to continue to grow rapidly. With the accelerated digital transformation of the global economy, cryptocurrencies, as an important part of the digital economy, will continue to gain market acceptance. The proportion of institutional investors’ allocation to cryptocurrencies is also gradually increasing. According to Bloomberg Industry Research forecasts, by the end of 2025, the proportion of global institutional investors’ allocation to cryptocurrencies will increase from the current 3% to 5%, which will bring a large influx of funds into the Crypto ETF market.

Experts generally have an optimistic view on the growth of the Crypto ETF market. Bitwise predicts that by 2025, the Bitcoin ETF alone will attract $35 billion in inflows, accumulating over $70 billion in less than two years. Bloomberg ETF analysts Eric Balchunas and James Seyffart expect a new wave of Crypto asset-related ETFs to emerge by 2025, further driving market expansion. Taking into account market trends and expert opinions, it is anticipated that by the end of 2026, the global assets under management of Crypto ETFs are expected to exceed $300 billion. Bitcoin ETF and Ethereum ETF will continue to dominate, but the market share of other types of Crypto ETFs will gradually increase.

6.3 Global Regulatory Coordination Outlook

Global regulatory coordination has a crucial positive impact on the development of the Crypto ETF industry. Currently, there are significant differences in regulatory policies for Crypto ETFs among different countries and regions, leading to market segmentation, increasing investor risks and investment costs, and restricting the cross-border development of Crypto ETFs. Achieving global regulatory coordination will help establish unified regulatory standards and norms, reduce regulatory arbitrage opportunities, and decrease market uncertainty.

Global regulatory coordination can promote the healthy development of the Crypto ETF market. Unified regulatory standards can enhance market transparency and standardization, strengthen investor protection, and boost investor confidence. Under the framework of regulatory coordination, regulatory authorities from various countries can share information, enhance cooperation, jointly combat market manipulation, fraud, and other illegal activities, and maintain market order. Global regulatory coordination also benefits the cross-border issuance and trading of Crypto ETFs, promotes global market connectivity, improves market efficiency, and drives the globalization of the Crypto ETF industry.

Conclusion

Crypto ETF has made significant progress in recent years, from the early difficult exploration to the rapid rise after the approval of Bitcoin and Ethereum spot ETFs in 2024 in the United States. Its market size continues to expand, and the variety of products is increasingly rich, gradually enhancing its influence in the global financial market. The United States, Canada, Hong Kong, and other regions are leading in the development of Crypto ETFs, with distinctive features in different markets, attracting different types of investors.

However, the development of Crypto ETF also faces many challenges. The high volatility of the cryptocurrency market leads to dramatic fluctuations in the net asset value of Crypto ETF, exposing investors to significant risks. Regulatory uncertainty still exists, with significant differences in regulatory policies across different countries and regions, increasing market uncertainties and compliance difficulties. Technical security risks cannot be ignored, as issues such as hacker attacks and private key management threaten the security of investors’ assets.

In the future, Crypto ETFs are expected to make breakthroughs in product innovation, with new cryptocurrency targets and composite products continuously emerging to meet the diverse needs of investors. The market size is expected to continue growing, with the acceleration of global economic digital transformation and further participation of institutional investors, the Crypto ETF market is expected to usher in greater development space. Global regulatory coordination will also become a trend, and unified regulatory standards will help promote the healthy development of the market.