Again within the halcyon days of August 2024, FT Alphaville argued that the launch of a leveraged single-stock ETF monitoring MicroStrategy’s inventory was the ETF business’s shark-jumping second.

Oh how sweetly/stupidly naive we had been on the time.

Below new SEC chair Paul Atkins, the primary US monetary watchdog will “embrace and champion” innovation, an unsubtle sign to the crypto world that it might run wild as soon as extra.

The inevitable result’s monetary abominations like this:

An organization known as “Canary Capital” — yeah, us neither — has grow to be the primary asset supervisor to file with the US Securities and Alternate Fee to launch an ETF that will comprise non-fungible tokens.

In line with the prospectus, the mooted fund would “make investments” 80-95 per cent of its property in Pengu, which, apparently, is the “official token of the Pudgy Penguin challenge”. An additional 5-15 per cent shall be held in Pudgy Penguin NFTs, alongside a sprinkling of solana and ether.

It’s maybe an indication of the occasions that these latter cryptocurrencies — solely one in all which (ether) has been permitted by the SEC as a holding for ETFs — are seen as nearly grown-up property compared to its proposed spheniscidae-themed holdings.

Its submitting admits that:

PENGU is a brand new SPL token that exists on the Solana Community. Relative to different digital property corresponding to bitcoin, ETH and SOL, PENGU has only a few recognized use instances aside from a collector’s merchandise . . .     

There isn’t any assurance that utilization of the PENGU will proceed to develop. A contraction within the use or adoption of PENGU could end in elevated volatility or a discount within the value of PENGU, which may adversely impression the worth of the Shares. Gross sales of PENGU which have been newly launched from escrow could trigger the value of PENGU to say no, which may negatively have an effect on an funding within the Shares. PENGU markets have a restricted historical past, PENGU buying and selling costs have exhibited excessive ranges of volatility, and in some instances such volatility has been sudden and excessive. Due to such volatility, Shareholders may lose all or considerably all of their funding within the Belief.

Spot markets on which PENGU trades are comparatively new and largely unregulated or will not be complying with present laws and, subsequently, could also be extra uncovered to fraud and safety breaches than established, regulated exchanges for different monetary property or devices, which may have a detrimental impression on the efficiency of the Belief. Disruptions at PENGU spot markets, futures markets and within the over-the-counter (“OTC”) markets may adversely have an effect on the provision of PENGU and subsequently their capability to create and redeem Shares of the Belief. The loss or destruction of sure “personal keys,” together with by the Custodian, may stop the Belief from accessing its PENGU.

Pudgy Penguins is related to the danger of an funding in NFTs. Investing in NFTs includes vital danger as a result of extremely unstable and speculative nature of the NFT market. The worth of NFTs can fluctuate dramatically over quick durations, influenced by elements corresponding to market demand, developments, celeb endorsements, and broader financial situations. Not like conventional property, NFTs lack historic efficiency information, making it difficult to foretell future worth. Moreover, the NFT market is comparatively new and unregulated, which might result in elevated susceptibility to market manipulation, fraud, and different illicit actions. Traders ought to be conscious that the worth of their NFT investments may lower considerably or grow to be illiquid, leading to potential monetary loss.

The tokens are at the least going cheep, and are at the moment buying and selling at $0.0103, in response to Coingecko, a dive of 63 per cent from the extent they hatched at in December 2024.

And that’s earlier than we get to the NFTs. The eagle-eyed amongst you should have noticed that the entire level of NFTs is that they’re non-fungible. Thus far ETFs, whether or not they maintain shares, bonds, by-product contracts and even cryptocurrencies, have all the time held fungible property — shares in Apple, tranches of a given bond and even bitcoin are absolutely interchangeable.

Bringing in NFTs modifications this equation. Every of the 8,888 Pudgy Penguin NFTs has a mix of various traits, together with color, facial features, equipment and backgrounds. Certainly, it’s this very uniqueness that offers NFTs “worth” — at the least to those that don’t consider this worth is roughly zero.

Fairly how this might work in a fund construction famed for each day liquidity, continually up to date web asset worth, and customarily minuscule premiums and reductions to NAV as a result of arbitrage mannequin facilitated by authorised individuals, is considerably unclear.

To be truthful, holders of Pudgy Penguin NFTs have to date had a worthwhile, if wild journey, at the least if that they had hopped on board at inception.

The NFTs had been minted at 0.03 ether in 2021. The ground value — the bottom value at which any of the gathering trades — hit 21.68 ether in February 2024, a to not be sniffed at rise of 72,167 per cent. That took the market cap to inside a feather of $500mn. The ground value has since dived to round 9.4 ether, or $23,300.

A push to increase the attain of ETFs into the realm of NFTs was maybe inevitable, even underneath a much less supine SEC.

Issuers have filed dozens of purposes for ETFs that will maintain cryptocurrencies apart from bitcoin and ether, corresponding to solana, XRP and cardano. Basket merchandise holding a spread of currencies are additionally within the offing.

Upping the ante additional, in January, three asset managers filed to launch ETFs that will maintain memecoins — missing even the use instances often ascribed to extra “conventional” cryptocurrencies — linked to Donald Trump and Elon Musk.

Nevertheless, even these days it’s unclear whether or not the Pengu ETF will ever truly occur. Canary Capital could have managed to make a submitting, however that’s a low hurdle to clear. Many advocates for the ETF model will hope it has as a lot probability of getting off the bottom as everybody’s favorite Antarctic avians.

Additional studying:

— SEC commissioner Crenshaw rips the company’s ‘regulatory Jenga’ (FTAV)

— Bonfire of the NFTs (FTAV)