The U.S. Securities and Exchange Commission's (SEC) approval of the common listing standards for crypto ETPs on September 17 has shortened the product launch time to just 75 days, paving the way for a wave of "pure" ETFs with fewer variations.
Bitwise forecasts that over 100 crypto-linked ETFs will be launched in 2026. This assessment is echoed by James Seyffart, a senior ETF analyst at Bloomberg, but he adds a clear warning: "We will witness a lot of liquidations."
The combination of explosive growth and rapid culling will shape the next phase of the market. Common standards address the approval time issue, but do not resolve the liquidity problem. With Bitcoin, Ethereum, and Solana, the new wave of ETFs will reinforce their dominant position. For the rest of the market, this is a severe stress test.
These new regulations reflect how the SEC previously applied to equity and bond ETFs in 2019, when the number of ETFs launched each year increased from 117 to over 370. Soon after, the fee war intensified, and within two years, dozens of smaller funds had to close.
Crypto is entering a similar "experiment", but under less favorable starting conditions. Custody activities are highly concentrated: Coinbase holds assets for the majority of crypto ETFs, accounting for about 85% of the global Bitcoin ETF market.
Additionally, APs and market makers rely on a few exchanges to price and borrow assets. Many altcoins lack depth in the derivatives market, making it easy to create price volatility when hedging for creations/redemptions.
The "in-kind" exchange order issued by the SEC on July 29 allows Bitcoin and Ethereum trusts to settle using the coins themselves instead of cash. This helps reduce tracking price discrepancies but forces APs to source supply, hold, and deal with tax issues for each basket of assets. For BTC and ETH, this remains manageable.
In contrast, for assets with thin liquidity, borrowing can completely dry up during periods of significant volatility, forcing funds to temporarily halt new creations, causing ETFs to trade at a premium until supply returns.
Pressure on market infrastructure
APs and market makers can handle larger creation/redemption volumes for high-liquidity coins. The main bottleneck is the ability to borrow for short selling. When a new ETF launches based on assets with limited borrowing, APs are forced to widen spreads or withdraw, leaving the fund with only the option to create in cash, leading to larger tracking price discrepancies.
Exchanges may also halt trading if reference prices are no longer updated, a risk that Dechert's analysis highlighted in October, even in the context of a shortened approval process.
Coinbase's pioneering position in the custody space is now both a revenue-generating machine and a sensitive point. US Bancorp has restarted its Bitcoin custody plan for institutions, while Citi and State Street are exploring crypto ETF custody relationships.
The message they send is very clear: will the market accept that 85% of ETF capital flows depend on a single partner? For Coinbase, the increasing number of ETFs means higher fees, greater attention from regulators, and the risk that just one operational incident could shake the entire segment.
Index providers hold silent power. Common standards tie sufficient conditions to oversight agreements and benchmark indices that meet exchange requirements, thereby deciding who gets to design measurement standards. In traditional ETFs, a few names like CF Benchmarks, MVIS, or S&P have dominated this space.
Crypto is following a similar trajectory, as asset distribution platforms tend to default to familiar indices, making it very difficult for new methods, even if superior, to break in.
The ultimate consequence: the market will explode in quantity, but the filtering process will be ruthless.
ETF.com reports that dozens of funds must close each year, with funds under $50 million often lacking the revenue to cover costs and being forced to dissolve within two years.
Seyffart predicts that the crypto ETF liquidation wave will start at the end of 2026 or early 2027. The most vulnerable entities are high-fee single-asset funds, niche index products, and investment themes that the underlying market is volatile faster than the ETF structure can adapt.
The fee war will accelerate the culling process. Bitcoin ETFs launched in 2024 have set fees at just 20–25 basis points, half that of previous products. As the product shelf becomes increasingly crowded, issuers will continue to cut fees deeper in flagship funds, leaving "long tail" funds unable to compete.
With low-liquidity assets, the secondary market mechanism will be the first point of fracture. When ETFs hold small-cap tokens with limited borrowing sources, a spike in demand will push trading prices to a premium until the AP finds enough supply. If borrowing disappears during periods of volatility, AP stops creating new ones, and the premium can persist.
In contrast, for BTC, ETH, and SOL, the dynamics are completely reversed. More layers of ETFs will deepen the connection between the spot and derivatives markets, narrowing price spreads and reinforcing their role as core collateral for institutions.
Bitwise believes that ETFs could absorb over 100% of the new supply of these three assets, creating a positive feedback loop: a larger ETF ecosystem, a thicker borrowing market, narrower price spreads, and greater appeal to financial advisors who are not allowed to hold coins directly.
Common standards make the launch of crypto ETFs easier. But they do not make it simpler to keep those ETFs alive.