The highly anticipated initial public offering of Elon Musk’s SpaceX is creating ripple effects far beyond the aerospace sector, potentially reshaping capital flows across ETFs as investors raise cash to participate in what could become the largest IPO in history. SpaceX is expected to debut with a valuation of roughly $1.75 trillion and has reportedly reserved as much as 30% of shares, or $22.5 billion worth of stock, for retail investors. That unusually large retail allocation has fueled expectations that investors may sell other speculative assets, including cryptocurrencies and related ETFs, to fund purchases of the stock.

SpaceX has reportedly attracted over $250 billion in investor demand for its IPO, with billions in orders coming from Middle Eastern funds. This demand significantly exceeds the $75 billion the company aimed to raise, implying an oversubscription of roughly 3.5 to 4 times its planned size. IPO pricing is likely to be announced on Thursday afternoon, with trading scheduled to begin on June 12 under the ticker SPCX. Currency strategists at Commerzbank, led by Volkmar Baur, estimate that around 20% of the IPO proceeds, or approximately $15 billion, could come from overseas investors on the first day of trading. With the U.S. current account deficit at $190.7 billion last quarter, the SpaceX IPO could refinance a "not insignificant" 8% of this deficit in one day.

Market Response and ETF Launches

ETF issuers are preparing to capitalize on SpaceX's Nasdaq debut. Defiance ETFs plans to introduce the Defiance Daily Target 2X Long SpaceX ETF (SPCU), while ProShares intends to launch the ProShares Ultra SpaceX ETF (SPCF) on June 12. GraniteShares is also joining the competition with its GraniteShares 2x Long SpaceX Daily ETF (SPAL). Additionally, REX Shares and Leverage Shares have announced plans to offer leveraged exposure to SpaceX. Issuers, including Defiance, Tuttle Capital, ProShares and others, have raced to introduce products designed to capitalize on anticipated volatility surrounding the stock.

In preparation for the debut, ERShares has implemented a shareholder protection plan for its ERShares Private-Public Crossover ETF (NASDAQ: XOVR). The asset manager aims to shield existing shareholders from potential trading surges and liquidity pressures. The fund currently holds roughly $50 million in unrealized appreciation from its SpaceX exposure. To preserve this value, ERShares plans to restrict certain large creation orders and may impose redemption fees of up to 2% on creation-unit redemptions starting on the day SpaceX begins trading. "SpaceX is a long-term conviction holding for XOVR, and as the IPO approaches, our priority is simple: protect long-term shareholders from short-term flows that may create unnecessary costs or potential dilution," said Joel Shulman, CEO and CIO of ERShares.

Potential Losers: Crypto ETFs Face Headwinds

Spot Bitcoin ETFs may be among the most vulnerable if retail investors continue rotating capital away from digital assets and toward high-profile AI and space-related opportunities. The pressure could be felt most acutely by the largest funds in the category, including the iShares Bitcoin Trust (NASDAQ: IBIT), Fidelity Wise Origin Bitcoin Fund (BATS: FBTC) and ARK 21Shares Bitcoin ETF (BATS: ARKB). According to Reuters, crypto ETF outflows exceeded $2 billion in May as enthusiasm for the asset class cooled. Bitcoin recently traded near $60,000, down sharply from its October peak.

The pressure could extend beyond spot Bitcoin funds to ETFs holding crypto-linked equities such as Coinbase Global Inc (NASDAQ: COIN), bitcoin miners and Strategy Inc (NASDAQ: MSTR). Examples include the Bitwise Crypto Industry Innovators ETF (NYSE: BITQ) and the VanEck Digital Transformation ETF (NASDAQ: DAPP). These products have benefited from crypto’s rise over the past two years, but now face competition from what some investors view as a newer and more compelling growth narrative. Expectations for additional blockbuster IPOs from OpenAI and Anthropic later this year could further intensify competition for retail investor dollars.

Potential Winners: Innovation ETFs

Funds with direct or indirect exposure to SpaceX could attract renewed investor attention as the IPO approaches. The Destiny Tech100 Fund (NYSE: DXYZ), which offers investors exposure to a portfolio of private technology companies, could also see heightened interest from traders seeking access to private-market innovation themes. Beyond dedicated SpaceX vehicles, broader innovation and AI-focused ETFs could benefit if investors increasingly favor artificial intelligence-related growth stories over cryptocurrencies. Semiconductor funds, which have significantly outperformed crypto assets over the past year, may also continue to attract inflows if the AI investment cycle remains intact.

IPO Key Metrics

Fundstrat’s Tom Lee stated that the upcoming SpaceX IPO will not mark the top of the bull market, countering concerns from institutional investors. Speaking on CNBC’s Power Lunch on Monday, Lee noted that a significant number of investors view the offering as a potential signal of excessive market enthusiasm. He argued that history suggests otherwise, pointing to the rarity of a single high-profile debut coinciding with a market peak.

Why Investors Are Worried

The concern among investors stems from the sharp market rally and the surge in AI-related stocks. Companies such as Alphabet Inc, OpenAI, Anthropic, and SpaceX are collectively seeking substantial capital to support AI infrastructure and growth initiatives. This has raised fears that liquidity could become stretched, particularly as one of the largest IPOs in history approaches. Consequently, some investors are choosing to take profits and adopt a cautious stance ahead of the offering.

The Historical Counterargument

Lee believes these fears are misplaced. He stated that history shows the SpaceX IPO should not mark the market top, emphasizing that it is rare for a big IPO to signal a peak. Instead, he views the debut as another milestone in an ongoing bull market rather than the event that concludes it.

The $7 Trillion Factor

One reason for Lee’s confidence is the availability of cash. He noted that there is still $7 trillion of cash on the sidelines, which markets can use to absorb the offering. Additionally, he pointed to strong demand from high-net-worth clients eager to gain exposure to SpaceX. This demand, in his view, reduces the likelihood that the IPO will drain liquidity from the broader market.

What Happens After The IPO?

Lee expressed a bullish outlook, suggesting the SpaceX debut could act as a positive catalyst. He predicted that the market will not only absorb the IPO well but will also perform positively post-IPO. While some investors treat June 12 as a potential turning point, Lee sees it as evidence that there is still plenty of cash waiting to be deployed.