The growing case for memecoin ETFs: Financial innovation or speculative risk?

After Barstool Sports founder Dave Portnoy helped boost a memecoin called jailstool to a $250 million market cap over the weekend, one industry expert joked about which company would be the first to file for a Jailstool ETF. Yet, while memecoins may be viewed as a joke to crypto natives and outsiders alike, their economic value is very real.

“Tradfi isn’t ready for this,” ETF Store President Nate Geraci said Sunday in a post on X after noting the speed jailstool took to get to market. “Memecoin today. Real assets tomorrow.”

Portnoy runs one of the country’s most popular media brands and contextualized his posts by saying the leader of the country even launched his own memecoin just before taking office on Jan. 20. When U.S. President Donald Trump and First Lady Melania Trump launched a couple of memecoins last month, issuers were quick to try and file for an exchange-traded fund to list and trade the token.

“I truly think everything is on the table,” Geraci said in a Jan. 29 interview with Thinking Crypto . “I think that's what makes this year really fascinating. I'm calling this the year of crypto ETFs. And that doesn't mean I'm endorsing any one ETF or I'm happy that this is happening. I'm just trying to call things like I see them, and clearly the regulatory winds have shifted.”

President Trump embraced bitcoin and crypto in general in the spring of 2024 and recently signed an executive order to explore a strategic digital asset reserve. He tapped crypto-friendly Paul Atkins to lead the U.S. Securities and Exchange Commission and Republican Commissioner Hester Peirce to lead a crypto task force. Given the pro-crypto embrace, issuers have flooded the zone with spot crypto ETF filings over the past month.

But memecoin exchange-traded funds?

The case for memecoin ETFs: Hype or inevitable?

“I think we could be staring at a golden age of crypto and you could see a lot of trader demand,” Tuttle Capital Management President Matthew Tuttle told The Block. “I think an ETF is going to be the product of choice for a lot of those people.”

Tuttle Capital has filed for 10 different leveraged crypto ETFs, including the newly-launched memecoins from President Trump and his wife .

“It's more than a shift, It's like a hurricane now blowing completely in the opposite direction that it was under the previous administration,” Geraci said on Thinking Crypto. “And so I just don't think we can rule anything out. There's nothing that would really surprise me that we see at least on the ETF innovation side.”

The SEC approved the listing of spot Bitcoin ETFs in January 2024 and spot Ethereum ETFs last summer. Bitcoin ETFs have been the fastest-growing funds in history, while Ethereum ETFs have been more subdued. Memecoin ETFs may just be “playthings” for crypto degens and other high-level retail traders, according to Bloomberg senior ETF analyst Eric Balchunas.

“I would never underestimate the power of volatility in attracting the degener crowd, especially if you can make it easier and frictionless and fit into the plumbing with tradfi,” Balchunas said last month on a podcast. “So that is the possibility for these but I wouldn't look at anything to be near as popular as the Bitcoin ETFs in terms of just legit billions and sticky money.”

The industry has been anticipating which altcoin will be next, and solana and litecoin appear to have the edge at this time. Some issuers have already gotten in line for a Dogecoin ETF .

Legitimizing memecoins vs. risking reputation

According to the former CEO of ETF.com, Dave Nadig, there has never been a greater likelihood for these products to launch. He said this is the “most permissive SEC” of his lifetime. But that doesn't mean he sees these memecoin developments as a positive for the ETF industry.

“The thing is -- it's TERRIBLE for the ETF industry as a whole,” Nadig said Feb. 6 on X. “When everything is an ETF -good bad, silly or serious - than being an ETF means NOTHING and advisors due diligence needs to lock down even harder. Like Fort Knox. That's BAD for anyone but the top 5 issuers or BYOA.”

Geraci said there's some reputational risk for the ETF issuers, and by offering memecoin funds, issuers could have a perception issue on Wall Street.

However, not everyone shares the same concerns. Crypto asset manager Bitwise, which filed for a spot Dogecoin ETF, thinks there are financial constraints to launching certain potentially risky products.

“I don’t think what we are heading towards is a free-for-all,” Bitwise CIO Matt Hougan told Financial Times last month. “I don’t think every crypto asset is appropriate for an ETP. There are corners of the crypto market that are not liquid enough, that are subject to manipulation and are subject to insider control that are not suitable for an ETP.”

While these joke tokens' market caps might be fleeting, Bitwise CEO Hunter Horsley said memecoins are here to stay. 

“What are they?” Horsley posited on X. “What’s an autographed baseball? What’s your favorite band’s merch? What’s your ‘Harvard’ branded hat? What’s a limited edition gold coin? They’re culture imbued collectibles. And in the case of meme coins: they’re tokenized, creating liquid global markets. It’s not Bitcoin or a crypto asset. It’s something else. And it’s here to stay."

Or perhaps as Balchunas told The Block last November: "Today's satire is tomorrow's ETF.”