Crypto ETFs have become a reality this year starting with Bitcoin, and now Ethereum is next. But will this trend eventually trickle down and result in a Litecoin ETF?
Before we get into the prospects of a Litecoin ETF taking place, it is important to first understand what ETFs are. It is short form for exchange traded funds. They basically refer to securities that track the prices of an asset and they are often designed to provide legal exposure to a specific asset. In Bitcoin’s case, ETFs allow companies institutions to secure exposure to Bitcoin.
Spot Bitcoin ETFs result in robust demand for Bitcoin. Some of the currently existing Bitcoin ETFs have billions in assets under management. Some examples include Grayscale Bitcoin Trust (GBTC) which has over $17 billion AUM and iShares Bitcoin Trust ETF (IBIT) with $16.3 billion AUM.
In theory, a spot Litecoin ETF should surely also provide more exposure to Litecoin. But before we draw that conclusion, perhaps it is best to ponder upon the very mechanisms that make ETFs such an important tool, as well as the driving forces behind the need for them.
Will Litecoin ETFs ever see the light of day?
It took a few years for Bitcoin ETFs to finally be launched after the idea was conceptualized. Since companies and institutions cannot directly hold BTC legally, ETFs were the next best thing. However, that meant the industry had to go through a lot of regulatory red tape before the ETFs could see the light of day. The first Bitcoin ETFS in the U.S were launched this year.
The reality of the situation now is that a Litecoin ETF is more probable now than ever before especially thanks to Bitcoin ETFs. Crypto is a massive field and investors will want exposure to more than just one cryptocurrency. This is already happening with Ethereum ETFs which are in the pipeline. Therefore,
The Case for a Litecoin ETF
Litecoin ranked 20th on Coinmarketcap, which means there are many other cryptocurrencies ahead of it that might be better candidates for an ETF. However, it does have one major advantage that could allow it to leapfrog them to become the ideal crypto for an ETF launch. Litecoin still operates on a proof-of-work consensus mechanism just like Bitcoin.
Here’s why the consensus mechanism could favor a Litecoin ETF. Remember we mentioned regulatory red tape as one of the reasons why ETFs might take long to be approved? Litecoin is more like Bitcoin in that regard than most of the other altcoins. This means the regulatory requirements involved in the road to Bitcoin ETFs could be applied to the Litecoin ETF approval process.
Litecoin is often described as Silver to Bitcoin if BTC is digital gold. This also alludes to the similarities in the two coins in their asset class. These factors highlight the possibility that Litecoin ETFs might have a smoother regulatory process. Of course there are numerous other factors that determine if the regulators will approve those ETFs. The idea here is that Bitcoin has already set a format for other coins, especially those that have similar characteristics.
Why Litecoin ETF approval would be good for the market
Now that crypto ETFs are becoming mainstream, the market will work towards diversifying into other assets in the crypto sphere. A Litecoin ETF could be a great start for achieving that diversity. Not only is it a coin that has survived multiple bull and bear markets, it is also relatively undervalued and has a relatively low maximum supply.
A coin that has great long-term potential that institutional-grade investors can take advantage of. In Litecoin’s case, the availability of institutional liquidity will could boost its accessibility and trigger a resurgence of retail attention. This may also encourage more adoption as a means of payments. Of course Litecoin’s price action would greatly benefit from such developments.
Conclusion on Litecoin ETF possibilities
Litecoin is no doubt a solid cryptocurrency that has been tried and tested. However, like many other coins, it has been experiencing dwindling attention. However, it is clear that Litecoin’s consensus mechanism highlights a major benefit that it could tap into for ETF applications. Unfortunately, there is no reason for excitement as of now, but there would be if some of the companies that launched Bitcoin ETFs were to file for Litecoin.
Also read about the Best crypto to buy now for the next leg of the bull run
