High Hopes for Spot Litecoin ETF Approval Before Year-End: Bloomberg Analysts

The prospect of a spot Litecoin Exchange-Traded Fund (ETF) being approved by the U.S. Securities and Exchange Commission (SEC) has taken a promising turn, according to analysts from Bloomberg. James Seyffart and Eric Balchunas have indicated there is a 90% likelihood that the SEC will greenlight the Litecoin ETF before the end of 2024, setting it apart from other proposed crypto ETFs vying for approval.

Favorable Landscape for Litecoin

Seyffart and Balchunas have highlighted that the potential for a Litecoin ETF’s approval is more favorable compared to other cryptocurrencies. With proposed ETFs for assets like XRP, Solana, and Dogecoin, their estimated approval chances have been quantified at 65%, 70%, and 75%, respectively. This places the Litecoin ETF in a stronger position as it moves through the regulatory process.

Litecoin (LTC), which emerged in 2011 as a quicker alternative to Bitcoin (BTC), operates on a similar proof-of-work consensus model. The analysts noted that the path forward for Litecoin’s ETF may be less complicated due to S-1 and 19b-4 forms already being filed and recognized by the SEC. They suggest that the SEC likely categorizes Litecoin as a commodity, further smoothing the approval process.

Growing Interest in Crypto ETFs

The context for this potential approval comes amidst an increased interest in cryptocurrency ETFs. Recent data from Farside Investors reveals that the demand for spot Bitcoin and Ether ETFs has surged, accumulating net inflows of $40.7 billion and $3.18 billion, respectively, since their launches in January and July 2024.

Despite this encouraging trend, Seyffart estimates that a Litecoin ETF could attract a smaller stream of investments, stating it could be impactful for fund companies even with as little as $50 million in net inflows. “They don’t have to hit it out of the park on a flows basis to be worthwhile from an issuer perspective,” he remarked in an interview with Cointelegraph.

Timeline for Decision Making

The SEC is expected to make decisions on several proposed crypto ETFs, including Litecoin, XRP, Solana, and Dogecoin, between October 2 and October 18. Seyffart expressed optimism that a Litecoin ETF could potentially launch before this deadline.

Furthermore, Seyffart and Balchunas acknowledged that Canary Capital and 21Shares had also filed for ETFs involving Hedera (HBAR) and Polkadot (DOT), though no approval odds were assigned to these filings at the time of reporting.

Potential for More Crypto ETFs

The analysts predict a surge in new crypto ETF filings, with issuers employing what they call a “spaghetti cannon approach” to see which offerings resonate with investors. Seyffart anticipates a broad array of ETFs targeting digital assets will emerge, suggesting that those without sufficient interest may eventually be liquidated.

Interestingly, prior to the recent developments surrounding the 2024 presidential election, Seyffart noted that the likelihood of approval for most of these crypto ETFs, except Litecoin, was below 5%. However, shifts in the regulatory landscape and market sentiment post-election may have rekindled optimism for these financial products.

Regulatory Challenges Ahead

While the prospects for a Litecoin ETF look bright, challenges remain in securing approval for others. Specifically, the security status of XRP is still under scrutiny, hinging on the outcome of an ongoing lawsuit against Ripple. Following a partial legal victory for Ripple in August 2023, which decreed that XRP is not deemed a security when traded on secondary markets, the SEC has appealed the decision, claiming that Ripple violated securities laws during initial sales to retail investors.

Similarly, the status of Solana as a security needs clarification before the SEC can assess it under the “commodities ETF wrapper” framework, indicating a complex regulatory environment still lies ahead for several of these proposed ETFs.

In conclusion, while the future for a spot Litecoin ETF seems promising, the landscape for other cryptocurrencies poses myriad challenges, underscoring an evolving regulatory approach toward digital assets in the United States.