Crypto ETF Selection Storm 2026: "Medium Load Liquidation" About to Activate?

The SEC-approved general listing standards, approved on 17/9, have shortened the crypto ETF launch process to 75 days, opening the future to hundreds of new products. Bitwise forecasts that more than 100 crypto-linked ETFs will appear in 2026. However, senior ETF expert James Seyffart from Bloomberg issued a stark warning: “A wave of liquidations will be an unavoidable problem.”

This is a double-edged story: on the outside, a surge in the number of products; on the inside, a brutal screening process that the history of stock ETFs has proven.

Precedent from the traditional market

When the SEC applied similar standards to bond and certificate ETFs in 2019, the number of ETFs launched annually increased from 117 to 370. But within just two years, dozens of funds had to close due to insufficient scale. The fee battle was fierce, and small products could not compete with larger rivals.

Crypto is now entering the same “experiment,” but the context is much more challenging from the start.

Bottlenecks that the common standards cannot solve

The new regulation shortens approval times, but it does not address the deadly issues: liquidity and custody.

Coinbase currently holds control as the main custodian, accounting for about 85% of the global Bitcoin ETF market share. This concentration is both a stable revenue source and a systemic risk. US Bancorp, Citi, and State Street have begun exploring participation, but the key question remains: will the market accept that 85% of ETF capital flows depend on a single company?

For high-liquidity coins like Bitcoin, Ethereum, and Solana, this is not a major issue. But for smaller assets, it’s a “liquidity shelf” about to be activated.

“In-kind swap” mechanism creates new friction

The SEC’s in-kind swap order on 29/7 allows funds to settle with the actual coin instead of cash, reducing tracking error. However, it forces authorized participants (AP) to source, hold, and handle tax issues themselves.

With BTC and ETH, this is still manageable. But when ETFs hold tokens with smaller market caps and limited borrowing sources, a sudden surge in demand will push the premium price up until AP finds enough supply. If borrowing sources disappear during volatile periods, AP will stop creating new certificates, and the premium could last indefinitely.

Fee wars: survivors and the dead

Bitcoin ETFs launched in 2024 have set fees at only 20–25 basis points, less than half of the previous generation. As the product shelf becomes increasingly crowded, issuers will continue to cut fees deeper on flagship products, making “long tail” products less competitive.

The most vulnerable ETFs are:

• Single-asset funds with high fees
• Niche index products
• Investment themes where the underlying market moves faster than ETF structures can adapt

Seyffart predicts a wave of liquidations will begin in late 2026 or early 2027. Funds under $50 million often lack enough revenue to cover costs and are forced to dissolve within two years.

Two different paths for Bitcoin/Ethereum and altcoins

For BTC, ETH, and SOL, the momentum is completely reversing. More ETF layers will deepen the link between spot and derivatives markets, narrow price gaps, and reinforce their role as core collateral assets. Bitwise believes ETFs could absorb over 100% of new supply, creating a positive feedback loop: a larger ETF ecosystem, thicker lending markets, and narrower spreads.

Conversely, low-liquidity assets will be the first to crack. The secondary market mechanism will become unstable, prolonged premiums will erode small funds’ competitive advantage, leading to a wave of comprehensive liquidations.

The invisible role of index providers

The common standards tie the sufficiency condition to oversight agreements and benchmark indices. Providers like CF Benchmarks, MVIS, or S&P dominate this space, and asset distribution platforms tend to default to familiar indices, making it very difficult for new methods, even superior ones, to break through.

Ultimately, the market will explode in quantity, but the screening process will be ruthless. Common standards make launching crypto ETFs easier, but they do not simplify the survival of those products.