Wall Street’s Crypto ETF Dilemma

Wall Street’s adoption of crypto ETFs has notably brought billions into Bitcoin and Ethereum. However, Sygnum, a Swiss-regulated digital asset bank, argues that these funds weaken the core benefits of crypto.

During an interview with Decrypt at Consensus in Hong Kong, Max Stuedlein, head of strategic digital asset solutions at Sygnum, highlighted that the “regular market hours” required for crypto exchange-traded funds create barriers to fully realizing crypto’s value. According to him, investors are merely adopting the drawbacks of traditional finance.

Stuedlein pointed out limitations such as restricted trading hours, reduced liquidity, and the loss of 24/7 accessibility, features that initially attracted investors to digital assets. “When you wrap Bitcoin into something traditional like an ETF, you just destroy all of that interest,” he explained, adding that packaging Bitcoin in ETF format diminishes key characteristics like direct ownership and decentralized access.

Sygnum caters to institutional and accredited investors by offering banking, trading, and asset management services for crypto. It was the first digital asset bank licensed by Switzerland’s financial regulator, FINMA.

Stuedlein mentioned a growing strategic divide between crypto-native institutions and traditional finance, which is increasingly introducing ETF products. In the U.S., spot Bitcoin ETFs have amassed $110 billion, making up 5.89% of Bitcoin’s market cap, while spot Ethereum ETFs have garnered $10.37 billion (3.15% of ETH’s market cap), according to CoinGlass data. Despite this, Sygnum asserts that these products undermine the distinctiveness of crypto.

Sygnum believes in developing products and services centered on the actual digital assets, which they argue is where real value lies. In their view, emphasizing the core benefits of digital assets is more effective than forcing traditional structures onto them.

The debate continues as various ETF proposals, beyond Bitcoin and Ethereum, are being acknowledged by the U.S. SEC, which could pave the way for significant capital inflows. Analysts at JP Morgan recently forecast potential inflows between $3 to $6 billion for Solana ETFs and $4 to $8 billion for XRP products if approved.

Sygnum, which manages over $4.5 billion and achieved unicorn status this year, positions itself as a regulated bank that embraces blockchain potential while critiquing whether the Wall Street approach diminishes crypto’s integral advantages. “Focus on the benefits digital assets offer and build services around that, rather than creating traditional products referencing digital assets,” Stuedlein stated.

Edited by Sebastian Sinclair