Altcoin season, struggling despite consecutive ETF launches... how long will the downturn last

Altcoins weak despite ETF launches

Investor sentiment worsens due to U.S. shutdown

"Must prove a rationale to traditional finance"

Mass launch of XRP ETFs

Watching whether it will trigger a market reversal

Major altcoins, which had raised hopes of a rally with the launch of spot exchange-traded funds (ETFs), have shown little upside. Some altcoins have actually widened their declines after ETF launches and remained weak. Global macroeconomic uncertainty and structural limits of altcoin ETFs are cited as causes.

According to the industry on the 20th, Bitwise and Grayscale's Solana (SOL) spot ETFs were launched at the end of last month. This is the first Solana spot ETF launched in the U.S. Fidelity's FSOL, VanEck's VSOL, and 21Shares' TSOL were newly listed this week, and a total of six Solana spot ETFs are currently trading on the U.S. market.

The problem is that Solana's price has not escaped weakness despite the ETF launches. As of 7:05 PM on the 20th (Korea time), Solana is trading at 141.84 dollars on CoinMarketCap, up 1.57% from the previous day. Although it showed strength that day, it is nearly 30% down compared with the ETF launch day of the 29th of last month (about 200 dollars).

Litecoin (LTC) and Hedera (HBAR), which had ETFs launched on the same day as Solana, are in similar situations. Litecoin's price fell about 8% after the ETF launch to 92 dollars. Hedera is also trading at 0.146 dollars, down about 30% from the launch day.

Frozen altcoin investor sentiment

The background to altcoins failing to recover despite successive ETF launches is complex. First, the shutdown effect acted as a negative factor. Due to the recent U.S. federal government shutdown, the October jobs report was not released for the first time in history, sharply reducing expectations for rate cuts. Analysts say this also shrank investor sentiment toward altcoins.

The minutes of last month's Federal Open Market Committee (FOMC) show that many Fed officials said it would be desirable to keep the policy rate unchanged for the remainder of the year. To make matters worse, the U.S. shutdown effect meant that key macroeconomic indicators were not released, increasing uncertainty. The market lowered the possibility of a December rate cut, which had been as high as 98% just one month earlier, to around 30%.

Generally, when expectations for rate cuts diminish, investor sentiment in the crypto market, which is classified as a risk asset, also weakens. In particular, altcoins, which have a stronger risk-asset character compared with Bitcoin (BTC) and Ethereum (ETH), suffer a greater hit.

Korbit Research Center Director Kim Min-seung said, "With repeated (crypto price) plunges from September to November putting the market already in a wait-and-see mode, pessimism about a December rate cut compounded the situation and cooled sentiment further," adding, "In such an environment, even if ETFs are launched, initial reactions are bound to be weak."

"Lack of narrative and demand proof"

Structural limits of altcoin ETFs are also cited as obstacles. Separately from listings, the amount of funds flowing into these products remains limited. According to SosoValue, cumulative net inflows into Solana ETFs stood at only 476 million dollars as of the third week since launch. Other altcoin ETFs also have not shown clear inflow trends, with Hedera ETFs at 75.3 million dollars and Litecoin ETFs at 7.3 million dollars.

Market size and liquidity are also limitations. Excluding Bitcoin and Ethereum, altcoins account for about 29% of the total cryptocurrency market capitalization. This means the base assets' liquidity itself may not sufficiently support ETF demand. In addition, single-asset altcoin ETFs may fail to attract sufficient institutional demand due to price volatility and regulatory risks, industry observers say.

Critics also point out that altcoins still lack a strong narrative. Bitcoin and Ethereum, which launched ETFs last year, persuaded the market with narratives such as 'digital gold' and 'the foundation of the future financial system,' respectively. Other altcoins are judged to lack investment rationale.

Kim said, "Solana remains at the level of being 'a faster Ethereum,' and XRP's value proposition has become vague as stablecoins dominate cross-border payments," adding, "If a clear narrative or real-use demand does not back them, ETF inflows will inevitably be limited."

'No.4 by market cap' XRP: can it lead a reversal?

The industry is focusing on whether the spot ETF for XRP, which has the largest market capitalization among altcoins, will succeed. On that day in the U.S. market, spot XRP ETFs from major asset managers such as Bitwise and Franklin Templeton were listed one after another. Grayscale, 21Shares, WisdomTree, and other asset managers have also applied to launch spot XRP ETFs.

Currently, the only U.S.-listed spot XRP ETF is Canary Capital's XRPC. However, if major asset managers consecutively launch XRP ETFs, fund inflows could accelerate. Increased competition among asset managers could lead to fee cuts and liquidity-enhancing strategies, which could positively affect the expansion of the investor base.

Crypto analyst Chad Steingraber predicted, "If spot XRP ETFs start operating in earnest, institutional buying could quickly absorb circulating supply," adding, "If this trend continues for a period, the supply-demand structure of the XRP market could be fundamentally reorganized."

Jin-wook BloomingBit reporter wook9629@bloomingbit.io