The first memecoin-backed exchange traded fund is set to begin trading on Thursday after US regulators waved through a fund holding dogecoin, an asset originally created as a joke with no fundamental value or use case.
The listing of the Rex-Osprey Doge ETF is the latest step in the evolution of ETFs beyond diversified, plain-vanilla stock and bond funds to riskier holdings such as cryptocurrencies, complex derivatives and thematic fads, pushing the boundaries of what regulators originally envisioned for the fund structure.
“I think it’s dangerous,” said Bryan Armour, director of passive strategies research for North America at Morningstar. “It normalises collectibles. [Dogecoin] seems to be a fad, like beanie babies or baseball cards.”
The Securities and Exchange Commission raised no objection to the fund during the regulatory 75 days following its creators’ application, allowing its launch to go ahead. The SEC has become friendly to crypto assets under its new chair, President Donald Trump’s nominee Paul Atkins.
Under previous chair Gary Gensler the regulator was fiercely anti-crypto and permitted the first spot bitcoin ETFs to launch in January 2024 only after it lost a court case. Bitcoin and ether ETFs now hold more than $175bn, according to consultancy TMX VettaFi, with mainstream asset managers such as BlackRock and Fidelity dominating the sector.
“This creates confusion for investors,” said Armour. “They would probably assume dogecoin has some economic value” because it is wrapped inside an ETF, he added.
“ETFs typically serve capital markets, not collectibles. I just don’t know where it stops. Should we expect a Labubu ETF next?” he asked, in a reference to the popular Chinese dolls.
Thursday’s launch comes a day after the SEC approved new streamlined listing standards for cryptocurrency ETFs, which are expected to release a wave of new products tracking digital currencies, some as soon as next month.
The dogecoin ETF is being launched by Rex Financial, an issuer of “covered call” and leveraged ETFs with $8bn under management, in partnership with Osprey Funds, a crypto specialist that runs over-the-counter and private placement digital asset funds.
Rex and Osprey will also launch on Thursday the first US ETF holding XRP, the third-largest cryptocurrency, and have filed to launch a $TRUMP ETF, which would invest in Trump’s own memecoin.
Unlike cryptocurrencies such as bitcoin and ether, which are created with use cases in mind such as facilitating decentralised finance or acting as a store of value, memecoins have no such underpinnings. They are often created as jokes and are more an embodiment of a strand of online community engagement.
Greg King, chief executive of Rex Financial, said: “The digital asset revolution is already under way. To be able to offer exposure to some of the most popular digital assets within the protections of the US [Investment Company Act of 1940] ETF regime, is something Rex-Osprey is proud of and has worked diligently to achieve.”
He added that investors “look to ETFs as trading and access vehicles”.
The dogecoin ETF will have a fee of 1.5 per cent, and the XRP fund 0.75 per cent. Both will be listed on the Cboe.
With dozens of applications pending for ETFs that would hold other cryptocurrencies, memecoins and even non-fungible tokens such as Pudgy Penguins, approval of a dogecoin ETF could open the floodgates, analysts said.
“There are 90 to 100 current filings. I don’t think there’s any reason to believe any of them won’t get through,” said Armour at Morningstar. “I don’t think this would have happened under Gensler. Putting memecoins into ETFs would have been a step too far.”
“We are on a slippery slope,” said Todd Rosenbluth, head of research at TMX VettaFi. “This is a watershed moment in a transition to a pro-crypto SEC.”
He warned that some crypto ETFs would add legitimacy to dogecoin and other more obscure assets.
“Some investors are going to equate this product with ETFs that are tied to the S&P 500 and gold,” he said.
However, Nate Geraci, president of investment advisory firm NovaDius Wealth Management, formerly The ETF Store, said investor demand could be significant.
“Dogecoin is currently the sixth-largest non-stablecoin crypto asset by market cap,” he said. “Regardless of its perceived utility, there is undeniable interest.”
Geraci said he expected the SEC to allow the evolution of ETFs to continue.
“While this may seem like an audacious launch, it’s likely just the beginning,” he said. “With the SEC expected to finalise generic listing standards for crypto ETFs soon, we could see products hit the market that make this dogecoin ETF look tame by comparison.”
