While a litecoin (LTC) exchange-traded fund is still only theoretical, investor demand for the product could rise as high as $580 million if Wall Street adopts it at the same rate as LTC’s better-known cousin bitcoin.
This calculation is based on the roughly 6% of bitcoin’s total supply that is now locked up in a number of ETFs. Similar performance of an LTC product would bring more than $500 million in inflows for the token, which has a similar Proof of Work consensus mechanism to BTC.
Those possibilities came into focus on Thursday as market participants began raising the likelihood that LTC could become the third crypto-asset to get its own ETF in the US, after BTC and ETH.
Canary Capital, a new digital asset-focused investment firm founded by former Valkyrie Funds co-founder Steven McClurg, is best positioned to issue such a product.
That got the ball rolling on a litecoin ETF in October. On Thursday, the Nasdaq exchange filed a 19b-4 document with the Securities and Exchange Commission, officially putting the regulator on the clock to make a decision.
Bloomberg’s Balchunas expects LTC to gain SEC approval because of the industry chatter he said he’s heard. Litecoin’s similar technical specifications to bitcoin may also prove to be a factor, given that their reliance on proof of work consensus mechanism provides a better likelihood of being considered a commodity.
The question is whether there is enough investor demand to make a litecoin fund a success or not.
“While demand is relatively low, it may still see some demand,” said James Seyffart, ETF analyst at Bloomberg Intelligence. “Just because the success won’t be as crazy as bitcoin or even the ethereum ETFs doesn’t mean it can’t be a success. The market and investors will make that decision.”
The Bitcoin ETFs set unprecedented records in their first year of trading, with the BlackRock iShares Bitcoin Fund (IBIT) becoming the most successful launch in the history of US ETF launches.
“The key issue here remains uncertainty about investor demand for additional products and whether new crypto ETP launches will matter,” JPM analyst Kenneth B. Worthington wrote in a note on Monday.
Worthington believes that tokens beyond Bitcoin, Ethereum or Solana often lack depth as they “can capture incremental attention for a limited period of time.”
About 6% of bitcoin’s total market capitalization, which stands at a whopping $1.97 trillion, is locked up in the ETFs, according to a report from JPMorgan earlier this week. By comparison, the ethereum (ETH) ETFs make up about 3% of ether’s $401 billion market cap.
He used this so-called “adoption rate” to determine how much inflow the proposed XRP (XRP) and Solana (SOL) ETFs could attract, which Worthington concluded could add up to a total AUM of up to $14 billion.
Applying this calculation to Litecoin, which has a market cap of $9.6 billion, Canary Capital’s fund could attract anywhere between $290 million and $580 million in its first year of trading, depending on how well investors will adopt the fund.
While $290 million seems disappointing compared to the $108 billion that the spot bitcoin ETFs have amassed, or the $12 billion that the ether ETFs currently hold, it is a larger amount than most ETFs ‘is in the US handles.
According to Seyffart, only about 1,330 out of about 4,000 ETFs in the U.S. have AUM of more than $300 million.
