Wall Street is reveling in the cryptocurrency ETP frenzy. Following the Trump administration's inauguration, the Securities and Exchange Commission (SEC) adopted a "general listing standard" in October, eliminating case-by-case reviews and allowing issuance to surge. Bloomberg senior ETF analyst James Seyffart points out that this surge in product issuance, expected to peak in 2026, could very well turn into a massive wave of liquidations in 2027.
Deregulation kicks off the party
Previously, issuers wanting to launch non-Bitcoin, non-Ethereum ETPs had to fill out Form 19(b) and wait for lengthy approval processes. Following the SEC's reforms, new products have emerged. Currently, there are over 126 applications in the queue, and analysts predict that over 100 will be officially listed by 2026. Bitwise likens the current situation to a "cheesecake factory," with a thick and diverse menu, ranging from XRP and Litecoin to meme-based assets. Issuers are adopting a "first-come, first-served" strategy, grabbing transaction fees even before genuine demand has been verified.
Having many products doesn't guarantee survival. Seyffart Warning:
"The vast majority of new ETPs struggle to accumulate sufficient asset size, and their operating costs are too high to sustain them for long. Traditional ETFs closed 622 lots in 2024, with an average lifespan of 5.4 years. The crypto market will only see an even faster rate of turnover."
The key issue is fragmented liquidity. In October 2025, market volatility surged by over 30%, with market makers withdrawing liquidity, resulting in a record $19 billion in forced liquidations within just a few hours. If a similar situation were to recur, smaller ETPs would face a "death spiral": investor redemptions → issuers selling off their holdings → a sharp price drop → triggering more redemptions, ultimately leading to liquidation.
Institutional strongholds and retail investor battlefields diverge
Funds are rapidly stratifying. Since 2024, Bitcoin ETFs have seen a cumulative inflow of $57.6 billion, while Ethereum ETFs have absorbed $12.6 billion. These are primarily backed by pension funds and large securities firms, prioritizing custodial standards and efficient subscription and redemption. In contrast, while Solana-related ETFs have attracted $725 million since October, this hot money has a short lifespan and will exit quickly at the first sign of risk. If real yields rise from 2026 onwards, speculative funds will withdraw even faster, with Altcoin ETPs becoming the first casualties.
The grand debut of ETPs in 2026 isn't necessarily a bad thing, but investors should remember that a proliferation of products doesn't necessarily correlate with market quality. Faced with a dazzling array of token indices, leveraged strategies, and thematic ETPs, the most important thing is to assess the underlying market depth, market maker strength, and asset management scale. When the stress tests arrive in 2027, liquidity depth will be the only reliable lifeline. The crypto market hasn't escaped cyclical patterns; remembering that the exit gate is always narrower than the entry gate is the true way to survive this party.
