Analyst Warns: A Wave of Cheap Crypto ETPs Could Pour In Next Year — and Many May Be Gone by 2027

An analyst note out this week argues that fresh regulatory nudges from the SEC will let dozens of new crypto exchange-traded products (ETPs) clear the finish line in 2026. The claim is simple: approvals are about to speed up, product pipelines look long, and that will invite a flood of low-cost offerings from big and small sponsors. The analyst says the result will be intense competition for investor dollars. Many new ETPs will fail to attract meaningful assets, face thin liquidity, and — if flows reverse — end up liquidating or being bought out by stronger players as early as 2027.

That’s a sharp, short-term story with a big market footprint. If even a handful of mid-sized ETPs close quickly, the act of selling their crypto holdings to meet redemptions could add selling pressure at vulnerable moments. For investors and institutions eyeing the next generation of crypto funds, the note reads as both a warning and a playbook: a lot will get launched, only a fraction will survive, and the pain from failed products could ripple through exchanges, market makers and smaller token markets.

How SEC shifts and filing activity are setting up 2026 as launch season

The analyst points to recent regulatory signals that have changed the math for sponsors. The SEC’s guidance in late 2025 relaxed some documentation and custody expectations for spot and hybrid crypto ETPs. That doesn’t mean the agency waved a magic wand — approvals still require legal and operational checks — but sponsors now face clearer technical paths and fewer novel questions to resolve.

At the same time, a long queue of pending filings and pre-launch announcements from firms large and small suggests 2026 is the natural window for a wave of debuts. Institutional managers who already run equity and commodity ETFs want to add crypto versions quickly. Exchanges and custody providers have been beefing up operational plumbing; authorized participants and market makers are hiring crypto staff. Together, these pieces create a reasonable expectation that many sponsors will move from filing to listing in the same calendar year.

Market signals back up the pulse: trading venues are preparing product tickers, custodians are offering standardized contracts, and some asset managers have publicly said they plan launches in 2026. The analyst reads all of this as a catalyst — not a guarantee — for a concentrated run of approvals and first trades next year.

Why so many products could fail fast: competition, fees and fragile liquidity

The core of the analyst’s argument is economic. When dozens of funds sell essentially the same exposure, the most obvious battleground is price. Sponsors will undercut each other on fees to win early flows. Fee compression is fine when flows exist, but it leaves little room for a product to cover fixed costs like custody, insurance and legal work if assets stay small.

That creates a two-way problem. First, small funds with thin assets under management (AUM) are expensive to run relative to what they earn. Second, thin AUM invites brittle liquidity. On days when markets move sharply, those funds may see outsized redemptions relative to the liquidity of the underlying crypto, forcing sponsors to sell into falling prices.

The analyst notes other survival risks: operational missteps at newcomers, weak or inexperienced authorized participants, and simple brand fatigue. Historical analogs exist: the ETF market in other asset classes produced dozens of redundant launches, and many were consolidated or closed within a few years. The crypto angle makes failure costlier because underlying tokens can swing wildly and because custody and settlement for some tokens remain more complex than for stocks or bonds.

Translating liquidations into market outcomes: who feels the pain?

Think of a liquidation as a series of forced trades. When an ETP closes, its sponsor must convert the holdings back into cash for investors. If several mid-sized ETPs act at once, their selling is additive to normal market flows. On liquid, high-cap markets such as bitcoin and ether the immediate price impact may be muted — especially if larger miners of liquidity, such as big exchanges and institutional OTC desks, step in. But in shallower corners of the market, or during a stressed period, the impact could be severe.

Who bears the losses? Primarily the product’s shareholders, who get cash that reflects the market price after forced selling. Sponsors can lose credibility and bear winding-down costs. Market makers and authorized participants risk inventory losses if they help meet redemptions but fail to hedge quickly. Exchanges could see higher volatility and spread widening, which raises execution costs for all participants.

The analyst lays out two scenarios. A probable scenario: many new ETPs launch, a large fraction draw modest assets, and some close quietly over 2026–2027 with contained market impact — intermittent selling pressure, more volatility, and consolidation toward larger trusted issuers like BlackRock (BLK) or established crypto custodians. A tail risk: a sudden market shock coincides with overlapping wind-downs, producing cascading redemptions and sharp, short-term price drops that stress certain exchanges and dealers. That outcome is less likely, the note says, but it is plausible and would amplify losses across the system.

How investors should size up new crypto ETPs — a practical checklist

The analyst is clear: crypto investors should treat new ETPs like early-stage products, not as interchangeable index funds. Here are concrete signals to watch when appraising a new listing.

• Sponsor strength: Prefer established, capitalized sponsors. Big asset managers are likelier to support struggling products through the early months.
• Early AUM level: Be cautious when an ETP has only tens of millions of dollars in assets. Small AUM raises the odds of fee-driven failure.
• Fee structure: Extremely low headline fees can look good, but they also mean sponsors have less runway to weather slow flows.
• Redemption mechanics: Check whether the fund allows cash or in-kind redemptions, and how often redemptions occur. Hard-to-redeem structures are riskier in a crisis.
• Authorized participants and market makers: Strong, experienced APs smooth creation and redemption. Weak APs suggest fragile liquidity support.
• Custody and insurance: Clear custody arrangements and insurance limits matter — not as a shield from market losses, but to reduce operational failure risk.

Overall view: the environment will reward scale and operational strength. Smaller, new entrants that trade on fee or marketing gimmicks look like higher-risk bets in this cycle.

What to watch next: milestones that will prove or disprove the analyst

Between now and 2027, a short list of events will validate or undercut the liquidation thesis:

• SEC approval cadence in 2026 — a clustered set of greenlights supports the analyst’s launch-wave view.
• Announcements of concrete launch dates and listing tickers from multiple sponsors — not just filings or intentions.
• Early AUM and flow reports in the first 90 days after listing — weak inflows across many products would be a red flag.
• Public statements from custodians or APs about operational limits or stress tests — disclosures of weak capacity would signal fragility.
• Any clustered liquidations or forced redemptions in 2026–2027 — that would be the clearest test of the analyst’s warning.

The coming year looks like a market design experiment at scale. For investors focused on crypto, the practical takeaway is simple: expect choice, expect competition, and expect consolidation. The smart money will be on scale, clean operations and realistic fee economics — and the first to promise rock-bottom fees without a plan for slow flows will be the likeliest to disappear.

Sources

• cointelegraph.com
• cointelegraph.com
• cointelegraph.com
• cointelegraph.com
• cointelegraph.com
• cointelegraph.com