The digital asset sector, which has been suffering from a prolonged recession, now has new victims: funds that were created to make cryptocurrencies of all kinds available to ordinary investors.
Grayscale Investments recently withdrew plans to launch exchange-traded funds (ETFs) linked to Cardano's ADA, Polkadot's DOT, and Hedera's HBar.
While a months-long decline has seen Bitcoin, the leading cryptocurrency, fall by 28% this year, other cryptocurrencies have fared even worse. An index of smaller coins has dropped by more than 40% in 2026, while more popular coins, including Dogecoin, Solana, and EDA, have lost nearly half their value. Trading platforms have also removed entire groups of coins from their listings, and trading activity has plummeted.
The withdrawals of plans, along with a series of fund closures, demonstrate how the prolonged weakness in smaller cryptocurrencies is affecting alternative investment firms that have sought to capitalize on retail investor appetite for broad-market digital products.
Demand for smaller cryptocurrency funds has declined.
There may be some interest from investors in smaller currencies, but that demand needs to be large enough to justify the costs of launching and maintaining the fund, according to Roxana Islam, head of sector and industry research at VittaFi.
She added that the economic viability of exchange-traded funds (ETFs) linked to smaller currencies may be becoming more difficult to justify, especially given the weakness of the broader market and the decline in assets in cryptocurrency ETFs in general.
The downturn is not limited to alternative currencies, as some of the canceled or shut-down products were linked to Bitcoin and Ethereum, at a time when individual investors continue to withdraw their capital from the sector in favor of booming bets such as artificial intelligence.
Bitwise Asset Management recently announced the closure of two cryptocurrency-focused funds, while REX Advisers took similar action with a range of exchange-traded funds (ETFs), including BMAX, a fund focused on companies accumulating Bitcoin. Meanwhile, Direxion closed its Limbo and Reckitt funds, whose trading symbols reference common terms within the cryptocurrency community.
Bitcoin and Ethereum funds are also facing pressure
Even US President Donald Trump was not immune to this, as his social media company, Trump Media & Technology Group, recently canceled plans to launch a fund based on Bitcoin and Ether, according to a regulatory filing.
Sentiment in the cryptocurrency market has remained weak for months. Bitcoin, the largest digital currency, is currently hovering around $63,000, a sharp decline from its all-time high in October when it surpassed $125,000.
Around $4.7 billion has flowed out of Bitcoin-focused exchange-traded funds (ETFs) since the start of the year, while Ethereum-focused funds have lost around $1.5 billion, according to data compiled by Bloomberg.
In cryptocurrency bear markets, historically smaller coins have suffered heavy losses during downturns, meaning that many niche-focused investment vehicles have suffered more than others.
Much of the speculative fervor that once characterized the sector has subsided, and individual investors have begun to shift away from digital assets in favor of trading opportunities in sports betting, prediction markets, and AI-related deals. The broader cryptocurrency market has lost nearly $1 trillion in value this year, according to CoinMarketCap.
Alternative currency funds are declining after the 2025 boom.
This represents a sharp shift compared to last year, when soaring prices and a more supportive regulatory environment led to a surge in applications to launch exchange-traded funds (ETFs) beyond Bitcoin and Ethereum. Asset managers rushed to convert everything from Dogecoin to XRP into ETFs, betting that the familiar structure and easy access through brokerage accounts would bring in fresh cash flow.
Now, many alternative currencies are facing the reality that launching and maintaining exchange-traded funds (ETFs) can be costly, and that products that fail to attract significant assets can quickly become economically unviable.
Wall Street has created the infrastructure necessary to bring cryptocurrencies into the world of traditional finance, but so far a large portion of the money flowing through these channels is directed towards the biggest names, leaving behind many lesser-known currencies.
Interest in some of the smaller alternative currencies is waning, according to David D. Tawil, president and co-founder of ProChain Capital.
Furthermore, there is a decline in interest in some smaller alternative currencies. Even if there is still considerable interest from investors, they are more likely to prefer the largest and best-performing exchange-traded fund (ETF) provider when choosing one.
