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 have been on the time.
Underneath new SEC chair Paul Atkins, the primary US monetary watchdog will “embrace and champion” innovation, an unsubtle sign to the crypto world that it may possibly run wild as soon as extra.
The inevitable result’s monetary abominations like this:

An organization known as “Canary Capital” — yeah, us neither — has change into the primary asset supervisor to file with the US Securities and Change Fee to launch an ETF that might include non-fungible tokens.
In line with the prospectus, the mooted fund would “make investments” 80-95 per cent of its belongings in Pengu, which, apparently, is the “official token of the Pudgy Penguin undertaking”. An additional 5-15 per cent can 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 authorized by the SEC as a holding for ETFs — are seen as nearly grown-up belongings 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 belongings akin to bitcoin, ETH and SOL, PENGU has only a few recognized use circumstances aside from a collector’s merchandise . . .

There is no such thing as a 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 affect the worth of the Shares. Gross sales of PENGU which were 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 circumstances 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 might not be complying with present rules and, due to this fact, could also be extra uncovered to fraud and safety breaches than established, regulated exchanges for different monetary belongings or devices, which may have a detrimental affect 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 supply of PENGU and due to this fact 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 entails important threat because of the extremely risky and speculative nature of the NFT market. The worth of NFTs can fluctuate dramatically over brief durations, influenced by elements akin to market demand, developments, movie star endorsements, and broader financial situations. Not like conventional belongings, 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. Traders ought to be conscious that the worth of their NFT investments may lower considerably or change into illiquid, leading to potential monetary loss.

The tokens are no less than going cheep, and are at present buying and selling at $0.0103, in accordance with 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. To this point ETFs, whether or not they maintain shares, bonds, by-product contracts and even cryptocurrencies, have at all times held fungible belongings — 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 mixture of various traits, together with color, facial features, equipment and backgrounds. Certainly, it’s this very uniqueness that provides NFTs “worth” — no less than to those that don’t imagine this worth is roughly zero.
Fairly how this is able to work in a fund construction famed for every day liquidity, always up to date internet asset worth, and customarily minuscule premiums and reductions to NAV because of the arbitrage mannequin facilitated by authorised members, is considerably unclear.
To be truthful, holders of Pudgy Penguin NFTs have so far had a worthwhile, if wild trip, no less than if that they had hopped on board at inception.
The NFTs have 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 beneath a much less supine SEC.
Issuers have filed dozens of purposes for ETFs that might maintain cryptocurrencies aside from bitcoin and ether, akin 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 might maintain memecoins — missing even the use circumstances often ascribed to extra “conventional” cryptocurrencies — linked to Donald Trump and Elon Musk.
Nevertheless, even this present day 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 agency’s ‘regulatory Jenga’ (FTAV)
— Bonfire of the NFTs (FTAV)