Ark Fund withdraws ETH ETF application, small market capitalization coin ETFs face profitability challenges

Recently, the "Wood Sister" Cathie Wood-led Ark Fund announced the withdrawal of its ETH ETF application, drawing market attention. The reason behind this decision may be related to profit prospects.

Currently, Ark Fund's BTC ETF ranks fourth in the market, with approximately 6% market share. However, despite its high ranking, it is speculated that the product may not have generated substantial profits. This is mainly because cryptocurrency ETFs generally have lower fee rates, most ranging from 0.19% to 0.25%, which is significantly lower than traditional ETFs.

Based on the current scale of the Ark BTC ETF, it could generate approximately $7 million in management fee revenue annually. Considering the corresponding operating costs, the profitability of this product may be at a critical point. In this case, launching the ETH ETF could turn out to be a losing business, which might be the reason why Ark Funds ultimately decides to abandon it.

From a business perspective, mainstream cryptocurrencies with smaller market capitalizations face greater challenges. For example, the market cap of SOL is only about 5% of BTC. To make the SOL ETF profitable, it may require managing around 20 million SOL, which is equivalent to 4.5% of the circulating supply of SOL. In contrast, the largest crypto ETF provider currently manages only 1.5% of the total BTC supply.

In addition, SOL faces other adverse factors:

1. SOL can earn about 8% yield on-chain, while the ETF prohibits including Staking features. This means that investors holding the SOL ETF will naturally lag behind direct holders of SOL by 8% in yield, whereas BTC ETF investors only lag by a 0.2% management fee.

2. The actual circulation of SOL may be lower than the official figure of 460 million. The lower market capitalization combined with high interest rates and regulatory pressure makes it difficult for institutions to obtain substantial profits through SOL ETF.

In summary, considering the current market capitalization and circulation situation, the SOL ETF may find it difficult to bring substantial returns to financial institutions. From a business perspective, projects lacking profit incentives are often hard to promote development.