Canary Capital Joins Bitwise in the XRP ETF Application Queue, But Will It Be Approved in the U.S.?

After the approval of spot Bitcoin and Ethereum ETFs by the U.S. Securities and Exchange Commission (SEC) this year, crypto investors have been speculating

Two crypto asset management companies have submitted applications to the U.S. Securities and Exchange Commission (SEC) for spot XRP exchange-traded funds (ETFs).

On October 2, Bitwise filed an S-1 application with the SEC for an XRP ETF. The company currently manages a Bitcoin ETF (BITB) and an Ethereum ETF (ETHW).

On October 8, crypto investment firm Canary Capital also submitted an application for a spot XRP ETF to the SEC. According to its application documents, Canary Capital stated that its ETF would provide clients access to the market for Ripple's native token (XRP) through traditional brokerage accounts, eliminating the risks and restrictions associated with directly purchasing and holding the tokens. Additionally, the investment company disclosed that its XRP would utilize the CF Ripple Index from the Chicago Mercantile Exchange (CME) to track the price of XRP. At the same time, Canary Capital plans to ensure that its ETF does not rely on other derivatives when tracking the value of XRP to reduce potential counterparty and credit risks. Currently, Canary Capital has not disclosed the code and potential custodian for its ETF.

Canary Capital was founded in September and is a newly established crypto investment company. On October 1, Canary Capital announced the launch of the first HBAR trust in the U.S., with HBAR being the native cryptocurrency of the Hedera network. In addition to McClurg, Canary Capital is also led by Josh Olszewicz, who serves as the portfolio manager and has extensive expertise in investment and the crypto field. Furthermore, Canary Capital offers crypto hedge fund solutions, including a "Barbell Strategy" designed specifically for complex and institutional investors.

The spot Bitcoin ETF that launched in January has performed exceptionally well, with a total net inflow of approximately $18.68 billion as of October 9. However, the recently launched Ethereum ETF has not fared well, with a total net outflow of $562 million since its listing in July as of October 9.

Some analysts believe that the spot XRP ETF may not be approved due to the SEC's legal dispute with Ripple. Although a judge has ruled that XRP is not a security and imposed a $125 million civil penalty on Ripple, the SEC is still appealing this ruling. The appeal is taking place in the U.S. Court of Appeals for the Second Circuit in Manhattan, New York. Since the SEC filed a lawsuit against Ripple Labs, XRP's ranking has dropped from the second-largest crypto asset to the seventh-largest asset.

Despite the pessimistic market sentiment, some in the cryptocurrency industry still believe that the XRP ETF will eventually be approved. "This indicates that ETF providers will closely monitor changes in the regulatory environment to seize opportunities to launch new products," said Stephane Ouellette, co-founder and CEO of FRNT Financial. "While there is still uncertainty about whether these products will be approved, it makes sense for two companies from the crypto space to try to expand their product offerings."

ETF Store president Nate Geraci stated that the approval of the ETF is just a matter of time, not whether it will be approved. However, he believes that this approval may be delayed until after the U.S. government changes.

Currently, market attention on XRP has significantly increased. Digital asset giant Grayscale recently launched the Grayscale XRP Trust, providing investors with another way to access digital tokens supported by the XRP Ledger (XRPL).

Meanwhile, other asset management giants like VanEck and 21Shares are also seeking ETFs linked to the price of Solana (SOL). However, Grayscale's XRP trust fund manages only $1.5 million in assets, while its Solana trust fund has assets exceeding $73 million.

Bloomberg ETF senior analyst Eric Balchunas stated, "Have you heard of Fed put options? It's like Trump call options. Currently, the ETF applications for XRP, SOL, or any other altcoin are like betting on Trump's victory with cheap call options because SEC Chairman Gensler will be leaving, and anything can happen. If Harris ultimately wins, these applications won't get approved at all, and this call option will become worthless."

In the derivatives market, call options are all-or-nothing bets on whether an asset will reach a specific price. If the asset reaches the price of the call option, there will be substantial returns. Balchunas's point is that companies deciding to apply for crypto ETF approvals, whether for XRP, Solana, or any other crypto asset, are essentially betting on Trump's winning the presidency.

The SEC has stated that spot cryptocurrency ETFs cannot be listed on U.S. exchanges until there is a highly correlated, regulated futures market for the corresponding assets. Katalin Tischhauser, head of investment research at crypto bank Sygnum, pointed out that such a market currently exists only for Bitcoin and Ethereum, not for other crypto assets. Bitcoin and Ethereum are the only crypto assets with regulated futures markets on the Chicago Mercantile Exchange (CME).