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The market for exchange-traded funds (ETFs) got a major boost in January when the United States Securities and Exchange (SEC) approved multiple spot Bitcoin ETFs. The SEC eventually approved these products after over a decade of continuous rejections. Since 2013, when the Gemini Exchange’s Winklevoss twins submitted the first application, the SEC has repeatedly dismissed all applications, citing problems with fraud and market manipulation.

The spot Bitcoin ETF market has attracted over $7 billion since trading began on January 11. The inflows look optimistic, leading stakeholders to consider the possibility of non-Bitcoin spot ETFs. 

How Likely is a Spot Litecoin ETF?

There are reasons to push for a spot Litecoin (LTC) ETF. A crypto ETF is simply one step further on the journey to merging the traditional and cryptocurrency sectors. Many investors in the traditional financial sector have been skeptical about significant cryptocurrency investments because of the industry’s unregulated nature. However, government endorsement of crypto trading could lead to substantial adoption of the asset. In the case of Litecoin, more merchants might be willing to officially receive payments for goods and services using LTC. In addition, Litecoin can become a popular alternative to fiat on several platforms across multiple sectors. Everything from an LTC marketplace to a Litecoin casino could become more popular as the volume of trades increases on traditional platforms. For example, by integrating Litecoin, online marketplaces could offer faster, cheaper, and more secure transactions, appealing to both vendors and buyers. For casinos, Litecoin's integration could mean instant deposits and withdrawals, enhancing user experience by providing a more efficient and discreet way to manage funds, potentially attracting a broader audience to the convenience and benefits of using LTC in digital transactions.

Currently, there is no official word from any prospective issuer that an LTC ETF is in the works. However, the market is generally optimistic that other crypto ETFs might come into play even before the end of the year.

The spot Bitcoin ETF from crypto asset management firm Grayscale Investments was converted from a private Bitcoin trust. Years ago, while Grayscale was going back and forth with the SEC on a possible conversion, Chief Executive Officer (CEO) Michael Sonnenshein reportedly said the approval of a spot Bitcoin ETF could allow the firm to consider converting some of its other trusts into exchange-traded funds (ETFs). Since the conversion of its Bitcoin trust was successful, Grayscale will likely put several others into motion.

Grayscale already applied to convert its Ethereum Trust into spot ETF months before the SEC approved Bitcoin ETFs. The crypto asset manager submitted a filing to the SEC last October, with Sonnenshein highlighting that it was necessary to “bring Ethereum even further into the US regulatory perimeter,” according to an official statement. Already, major American exchange Coinbase has submitted a report in favor of the approval, highlighting Ethereum’s decentralized governance and the surveillance-sharing agreement for the ETF, between Coinbase and the Chicago Mercantile Exchange (CME).

Generally, it is safe to say that a Litecoin ETF is possible, likely already being developed by one or more prospective issuers. Although no timeline can be adequately measured, the community can reasonably expect Grayscale to submit an application to the SEC to convert its LTC Trust to an ETF.

What is Litecoin’s Chance of Getting SEC approval?

The SEC is not a big supporter of the crypto market. Even when the Commission eventually approved spot Bitcoin ETFs, a statement published by Chair Gary Gensler specified that the Commission’s permission for spot Bitcoin ETF trading is neither an approval nor an endorsement of Bitcoin. Although unsurprising, it shows that the SEC’s approval of spot Bitcoin ETFs may have been reluctant.

After several years of the SEC refusing applications, Grayscale eventually sued the Commission in 2022. The lawsuit accused the agency of “acting arbitrarily and capriciously,” specifying that the SEC failed to “apply consistent treatment to similar investment vehicles.” Last August, a US Court of Appeals judge ruled in favor of Grayscale, forcing the SEC to vacate its order denying the GBTC listing. Following the court’s ruling, stakeholders and observers almost unanimously agreed that the SEC had no option but to approve the application.

A rigorous deliberation process will likely follow any application for a Litecoin ETF. As with Bitcoin and Ether applications, the Commission will probably announce multiple delays and call for public comments before deciding. Already, there are divergent views on whether or not the SEC is willing to approve other crypto ETFs.

For instance, TD Cowen believes Gensler is deliberately “taking a go-slow approach” to Ether ETFs. One of the reasons the firm offered is that Gensler is not in a hurry since his tenure does not end until June 26, giving him time for enforcement action instead of definitive legislation. Interestingly, TD Cowen also offered a political reason, stating that Gensler is reluctant to offend progressives any further as they are instrumental to his interest in other roles, such as Treasury Secretary. Gensler also said in a January media briefing that the SEC’s approval of Bitcoin ETFs “is cabined to this one commodity non-security and shouldn’t be read to be anything other than that.”

In an X post, Fox Business News journalist Eleanor Terrett stated that the likelihood of an ETH ETF is a “hard no” because of “internal resistance” at the SEC. However, SEC Commissioner and “Crypto Mom” Hester Pierce said in an interview that the Grayscale court case was a lesson that will stick, adding that the Commission should not need a court ruling to get it right. 

Generally, the likelihood of a Litecoin ETF might rely heavily on an ETH ETF. If the SEC does approve one of the few ETH ETF applications it is currently reviewing, an LTC ETF just might be on the way.