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 industry’s shark-jumping moment.
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 could run wild as soon as extra.
The inevitable result’s monetary abominations like this:

An organization known as “Canary Capital” — yeah, us neither — has turn into the primary asset supervisor to file with the US Securities and Trade Fee to launch an ETF that may comprise non-fungible tokens.
In accordance 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 undertaking”. An extra 5-15 per cent will likely 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 accepted by the SEC as a holding for ETFs — are seen as virtually grown-up property compared to its proposed spheniscidae-themed holdings.
Its filing admits that:
PENGU is a brand new SPL token that exists on the Solana Community. Relative to different digital property reminiscent of bitcoin, ETH and SOL, PENGU has only a few recognized use instances other than 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 lead to elevated volatility or a discount within the worth of PENGU, which might adversely impression the worth of the Shares. Gross sales of PENGU which were newly launched from escrow could trigger the worth of PENGU to say no, which might 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 might lose all or considerably all of their funding within the Belief.

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

Pudgy Penguins is related to the danger of an funding in NFTs. Investing in NFTs includes important threat because of the extremely unstable and speculative nature of the NFT market. The worth of NFTs can fluctuate dramatically over brief intervals, influenced by components reminiscent of market demand, traits, superstar endorsements, and broader financial situations. In contrast to conventional property, NFTs lack historic efficiency knowledge, 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. Buyers needs to be conscious that the worth of their NFT investments might lower considerably or turn into illiquid, leading to potential monetary loss.

The tokens are not less than going cheep, and are presently buying and selling at $0.0103, based on 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, spinoff contracts and even cryptocurrencies, have at all times held fungible property — shares in Apple, tranches of a given bond and even bitcoin are totally interchangeable.
Bringing in NFTs adjustments this equation. Every of the 8,888 Pudgy Penguin NFTs has a mixture of various traits, together with color, facial features, equipment and backgrounds. Certainly, it’s this very uniqueness that offers NFTs “worth” — not less than to those that don’t consider this worth is roughly zero.
Fairly how this may work in a fund construction famed for every day liquidity, continuously up to date web asset worth, and usually minuscule premiums and reductions to NAV because of the arbitrage mannequin facilitated by authorised individuals, is considerably unclear.
To be truthful, holders of Pudgy Penguin NFTs have up to now had a worthwhile, if wild trip, not less than if they’d hopped on board at inception.
The NFTs had been minted at 0.03 ether in 2021. The ground worth — the bottom worth 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 worth 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 beneath a much less supine SEC.
Issuers have filed dozens of functions for ETFs that may maintain cryptocurrencies apart from bitcoin and ether, reminiscent of 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 may maintain memecoins — missing even the use instances normally ascribed to extra “conventional” cryptocurrencies — linked to Donald Trump and Elon Musk.
Nonetheless, even at the present time it’s unclear whether or not the Pengu ETF will ever really 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 likelihood of getting off the bottom as everybody’s favorite Antarctic avians.
Additional studying:
— SEC commissioner Crenshaw rips the agency’s ‘regulatory Jenga’ (FTAV)
— Bonfire of the NFTs (FTAV)