Wall Street’s ETF Boom Faces a Reality Check as Crypto Investors Rotate

After three consecutive years of double-digit gains in the S&P 500, Wall Street is increasingly asking what comes next. The historic rally has powered a “perfect year” for ETFs, but analysts are warning that periods of near-flawless performance often precede volatility. The last comparable moment came after 2021, when the S&P 500’s strong run was followed by a painful 19% drop in 2022 as the Federal Reserve aggressively raised interest rates. That correction reversed tech-driven enthusiasm, slowing both ETF inflows and new product launches.

Today, the parallels are hard to ignore. In 2021, excitement around big tech stocks fueled record demand. In 2025, AI spending has taken center stage, but skepticism is growing over whether massive capital expenditures by Big Tech will deliver sufficient returns. Since October, the S&P 500 has largely traded sideways, reflecting uncertainty rather than confidence. Bloomberg Intelligence ETF analyst Eric Balchunas has cautioned investors to brace for a “reality check,” warning that 2026 could bring heightened volatility or leveraged ETF failures, risks underscored by the collapse of GraniteShares’ 3x Short AMD ETP, which lost nearly 90% in a single day.

Within this broader ETF environment, crypto ETFs are showing a notable rotation. Bitcoin ETFs, led by BlackRock’s IBIT, attracted massive year-to-date inflows despite negative returns, highlighting long-term conviction among institutional investors. However, after Bitcoin fell roughly 30% from its October high, IBIT recorded weeks of outflows, while Ethereum ETFs also saw sustained withdrawals in December.

At the same time, newer altcoin ETFs have gained traction. Spot XRP ETFs logged an unprecedented streak of daily inflows following their November launch, and Solana ETFs attracted significant capital despite steep price declines. Supporters argue this reflects a structural shift toward assets with clearer regulation and stronger utility narratives, while skeptics see a temporary “honeymoon phase” common to new ETF launches.

As more crypto ETF applications await SEC approval, 2026 is shaping up to be a pivotal year. Whether this rotation signals a lasting change or a short-term adjustment will offer important clues about the future direction of both crypto markets and Wall Street’s broader ETF landscape.