Litecoin Positioned to Become Third U.S. Spot Crypto ETF with Up to $580M in First-Year Inflows

Litecoin (LTC) is emerging as a strong contender to follow Bitcoin and Ethereum as the third cryptocurrency to have a U.S. spot exchange-traded fund (ETF). On January 16, CoinDesk reported growing optimism about Litecoin ETF approval.

Canary Capital, a new crypto investment firm founded by Valkyrie Funds co-founder Steven McClurg, initiated efforts to launch a Litecoin ETF in October. Nasdaq has since submitted a 19b-4 regulatory amendment for the ETF’s listing and trading to the U.S. Securities and Exchange Commission (SEC).

Path to Approval

Eric Balchunas, Senior ETF Analyst at Bloomberg Intelligence, noted that the Litecoin ETF now meets all requirements, marking it as the first altcoin ETF prepared to enter the SEC approval process.

“The SEC has provided feedback on the S-1 filing, and Litecoin is classified as a commodity rather than a security. With a new SEC Chair in place, there’s no reason for this application to be withdrawn,” Balchunas said.

Litecoin’s similarity to Bitcoin, particularly its proof-of-work (PoW) consensus mechanism, minimizes the risk of it being classified as a security, making its path to approval smoother.

Demand and Market Dynamics

Despite its strong technical foundation, some question whether Litecoin has sufficient demand compared to Bitcoin or Ethereum. James Seyffart, Bloomberg ETF Analyst, acknowledged that while demand may be lower, the ETF could still attract significant interest.

“Even if it doesn’t replicate the immense success of Bitcoin or Ethereum ETFs, a Litecoin ETF could find its niche, and the market will ultimately determine its success,” Seyffart explained.

Projected Inflows and Market Impact

JP Morgan noted that while Bitcoin and Ethereum spot ETFs have seen substantial adoption, the investment demand for other crypto ETFs remains uncertain. However, applying Bitcoin and Ethereum’s adoption rates to Litecoin suggests potential inflows of $290 million to $580 million in the first year.

Though smaller than the $108 billion in Bitcoin ETF assets and $12 billion in Ethereum ETF assets, these figures would still place Litecoin’s ETF above the median asset size for U.S. ETFs. Of the 4,000 ETFs in the U.S., only 1,330 have assets under management exceeding $300 million.

Broader Context

Litecoin’s potential ETF approval represents another step in the U.S. financial system’s gradual embrace of cryptocurrencies. While it may not achieve the same scale as Bitcoin or Ethereum ETFs, its approval could solidify Litecoin’s position in the evolving digital asset landscape and provide an important test case for other altcoin ETFs.