The "Single Point of Failure" Threat Behind the Explosive Growth of Cryptocurrency ETFs in 2026

A Silent Concentration Risk Is Building Up

When the SEC approved a unified listing standard for cryptocurrency trading products (ETPs) on September 17, the market迎来了 an unprecedented window of opportunity—taking only 75 days from project approval to launch. According to Bitwise’s forecast, more than 100 crypto-related ETFs will be launched by 2026, and Bloomberg’s senior ETF analyst James Seyffart bluntly pointed out: “We will witness a wave of large-scale fund liquidations.”

But behind this seemingly prosperous wave, there is an unsettling systemic risk—overconcentration of custody rights.

According to industry data, Coinbase controls 85% of the global crypto ETF custody assets, with an overwhelming dominance in Bitcoin (BTC) and Ethereum (ETH) ETFs. This proportion is not only outrageously high but also lays a ticking time bomb for the entire ecosystem: if Coinbase encounters operational issues, 85% of the world’s crypto-related ETF assets could face risks simultaneously.

Liquidity Traps and the Arrival of the “Non-Arbitrage” Era

The new unified standard appears to simplify the process, but it only solves the timing problem, not the liquidity problem—which is the real hidden danger.

For top assets like BTC (current price $90,220) and ETH (current price $3,070), the situation is still manageable. But for SOL (current price $139.21), XRP (current price $2.05), ADA (current price $0.38), and other mid-sized crypto assets, liquidity depth is already tight.

When a new mid-sized crypto ETF launches, authorized participants (APs) need to find enough borrowed coins to hedge when creating new shares. In a bull market, borrowing costs soar, and available lendable assets quickly dry up. Once borrowing channels are exhausted—something that can happen during market volatility—APs will either demand wider bid-ask spreads or simply stop creating new shares. The result is ETFs trading at a premium until the market rebalances. This is called the “non-arbitrage phase,” and it is also a precursor to the “large-scale liquidation” Seyffart warned about.

Custody Diversification Is Just Beginning

It’s not only regulators who realize this risk. U.S. Bancorp has resumed Bitcoin institutional custody services (via NYDIG), and Citibank and Bank of America are exploring crypto ETF custody relationships. Their core message is straightforward: Do you really want 85% of the world’s crypto ETF assets relying on a single custodian?

This is a double-edged sword for Coinbase: more ETFs mean more custody fee income, but also increased regulatory pressure and operational risks. If any link fails, the entire industry could plunge into panic.

Index Providers and the “Gatekeeper” Power

Few people notice that, in this ETF frenzy, the real power lies with index providers.

CF Benchmarks, CoinDesk, Bloomberg Galaxy, and a few other institutions actually act as “gatekeepers,” deciding the composition, weighting rules, and rebalancing timing of ETFs. The new unified standard ties the conditions to the supervision and reference benchmarks of these index providers, further strengthening the monopoly position of existing players.

Even if a new index company has a better methodology, market participants are accustomed to the existing index ecosystem, making it difficult for newcomers to shake up the status quo.

ETF Liquidation Cycles Will Accelerate

History offers a reference. After the SEC approved the unified standard for stocks and bond ETFs in 2019, the annual number of new ETFs surged from 117 to 370. This was followed by fierce fee competition, leading dozens of small funds with assets below $50 million to close within two years.

The crypto market is reenacting this script, but with even harsher initial conditions.

The fees for newly launched Bitcoin ETFs in 2024 have already dropped to 20-25 basis points, halving from earlier levels. As product lines become crowded, fees for mainstream ETFs will further decline, and ETFs for long-tail assets will be unable to compete on fees. The most vulnerable products—including single-token duplicates, niche index funds, and thematic funds—are expected to be the first to be phased out by late 2026 or early 2027.

Risk Level Overview

For major assets (BTC, ETH): more ETF products mean deeper liquidity, more borrowing channels, and tighter spreads. Bitwise predicts that ETFs for these two assets will absorb over 100% of new supply inflows, creating a strong positive feedback loop. Institutional advisors are prohibited from holding coins directly, making ETFs their only option, further deepening the connection between spot and derivatives markets.

For mid-cap assets (SOL, XRP, ADA, etc., with existing futures or qualified ETFs): custody options will become scarcer and more concentrated. Only Coinbase and a few specialized custodians are willing to handle these coins, while small and mid-sized custodians gradually exit due to inability to spread costs. During market volatility, creation/redemption processes are prone to disruption, and NAV premiums and discounts will become normal.

For long-tail assets (meme coins, specific theme tokens): almost no mainstream custodians are willing to accept them. These products may rely on small or offshore custodians, concentrating operational and cybersecurity risks. Pricing methods often rely on indices from a few exchanges, and any manipulation or wash trading on these exchanges will directly impact ETF NAV.

Limitations of the Regulatory Framework

SEC Commissioner Caroline Crenshaw warned that these standardized channels could lead to a flood of product approvals that are merely reactive, creating systemic vulnerabilities that regulators cannot detect under normal circumstances and only become apparent during crises.

The core logic of the unified standard directs capital toward the most liquid and organized crypto assets—essentially BTC, ETH, and SOL. The question is: Is this wave of ETFs reinforcing infrastructure centralization around a few coins and a single custodian, or truly dispersing risk and access channels?

The Final Bet

For Bitcoin and Ethereum, this wave is undoubtedly a crowning moment. Coinbase’s custody assets reached $3 trillion in Q3 2025. Each new ETF layer introduces new institutional investment channels, new borrowing sources, and reasons to build custody infrastructure. Network effects and vulnerabilities coexist.

For long-tail assets, the story is quite different. More ETF products may bring more legitimacy, but at the cost of further liquidity fragmentation, shallower depth per product, and increasing risks of fund liquidations. Issuers are betting that some products will survive; authorized participants bet they can profit from spreads and borrowing fees before a large-scale withdrawal wave occurs; custodians believe that centralization yields better returns than competition—at least until regulators or clients mandate diversification.

The unified standard has made launching crypto ETFs easier. But keeping them alive is not that simple.