Solana ETF Outlook: Four Institutions Already Vying to Apply, Potential Total Demand Could Reach $3 Billion

Original Article Title: "Solana ETF Approval Prospects: From 'Almost Hopeless' to 'Feasible by End of 2025,' What Challenges Lie Ahead?"

Original Article Author: Weilin, PANews

The BZX Exchange of the Chicago Board Options Exchange (Cboe) recently filed applications for four Solana ETFs. With the conclusion of the U.S. Election Day and Trump's return, Securities and Exchange Commission (SEC) Chairman Gary Gensler announced his resignation scheduled for January next year. The cryptocurrency ETF regulatory environment is expected to undergo significant changes, creating new opportunities for the approval of Solana ETFs.

Analysts believe the SEC will transition from an "enforcement-based" to an "disclosure-based" regulatory approach. If the Solana ETF is approved, it will ignite a tremendous demand in the cryptocurrency ETF market. Despite Solana being the current fourth-largest cryptocurrency by market capitalization, lacking support from a mature futures market, and facing potential hurdles of being classified as a security, its ETF application process is steadily progressing amidst the anticipation of a new regulatory environment.

Four Institutions Race to Apply for Solana ETF, Previously "Almost Impossible"

On November 22, the Cboe BZX Exchange's filing revealed that it proposed to list and trade four types of Solana ETFs on its platform. These ETFs, initiated by Bitwise, VanEck, 21Shares, and Canary Funds, are categorized as "Commodity-Based Trust Shares" and submitted according to rule 14.11(e)(4). If formally accepted by the SEC, the final approval deadline is expected to be in early August 2025.

In addition to Bitcoin and Ethereum, the following cryptocurrencies are also awaiting ETF approvals:

• XRP ETF: Applications have been submitted by Canary Capital, Bitwise, and 21Shares.

• Solana ETF: Approvals are being sought by Canary Capital, 21Shares, Bitwise, and VanEck.

• Litecoin ETF: An application has been submitted by Canary Capital.

• HBAR ETF: An application has been submitted by Canary Capital.

ETF Store President Nate Geraci stated on November 21 that there are reports that at least one issuer has also attempted an ETF application for ADA (Cardano) or AVAX (Avalanche).

Currently, some industry insiders believe that the likelihood of a Solana ETF being approved is ahead of other ETFs.

However, just three months ago, there were public reports indicating that CBOE had removed two potential Solana ETF 19b-4 applications from its website's "Pending Rule Changes" page. At that time, Bloomberg ETF analyst Eric Balchunas commented that after Cboe removed the Solana ETF 19b-4 application from its website, the Solana ETF had almost no chance of approval. However, the new regulatory environment may bring significant changes.

Expected Regulatory Changes: SEC Will Return to an Information Disclosure-Based Regulatory Approach

After the U.S. election day, the incoming President Trump and the most crypto-friendly Congress in history are set to take office. Meanwhile, SEC Chairman Gary Gensler, who has been criticized for the crypto industry, will step down on January 20, 2025, bringing more optimism to crypto supporters.

ETF Store President Nate Geraci stated that he believes a Solana ETF is very likely to be approved by the end of next year. "It appears the SEC is in active communication regarding this product with the issuer, which is clearly a positive signal."

Alexander Blume, CEO of Two Prime Digital Assets, agrees with this view, stating that if the issuer is not confident of success, they would not waste time and money on this endeavor.

Matthew Sigel, Director of Digital Assets Research at VanEck, the first to apply for a Solana ETF, stated, "It is under Gary Gensler's SEC leadership that the traditionally rule-oriented, enforcement-based regulation has been broken, returning to a disclosure-based regulatory system will bring more possibilities for innovation. I believe the likelihood of launching a Solana ETF by the end of next year is very high."

However, in contrast to VanEck's optimism, Robert Mitchnik, Head of the BlackRock Digital Assets Department, the largest Bitcoin ETF issuer, stated that the company is not very interested in cryptocurrencies other than Bitcoin and Ethereum.

SEC Chair Gary Gensler to Step Down in January 2025

On January 20th next year, Gensler will leave his position as SEC Chair, which is also the same day Trump took office. Recently, these news have successively boosted the crypto market, with the price of Bitcoin hitting historic highs as it approaches the $100,000 mark.

Data shows that the SEC set a record in the 2024 fiscal year, bringing a total of 583 enforcement actions and obtaining $8.2 billion in financial remedies, the highest amount in SEC history. This represents a 14% increase in enforcement actions compared to 2023. Cases involving cryptocurrency, private funds, and other high-risk financial misconduct have been a priority for the agency. Gensler's resignation is expected to herald a change in the crypto regulatory environment.

Alexander Blume mentioned above stated, "Through regulated traditional financial channels such as banks and exchanges, institutions and retail investors can access cryptocurrency via ETFs, which will open up a previously non-existent pool of funds. This is like replacing a (small) garden hose with a (large) fire hose, implying enhanced potential market momentum, and speculative trading may also have a greater impact."

Solana's Strong Growth Momentum, but What Potential Approval Challenges Does It Face?

Fueled by the meme trend, Solana has shown significant growth momentum this year. Solana's native token SOL broke its previous all-time high at the end of 2021 on November 23rd, reaching $263.83, with a market value of $121.1 billion, making it the fourth-largest cryptocurrency.

What obstacles will Solana ETF face in its application? Looking back at previous Ethereum ETF applications, the Ethereum ETF approval statement by the SEC utilized an analytical framework called the "Ark Analysis Test," provided by Ark Funds and adopted by the SEC. The framework listed several key reasons that ultimately led to the approval of the Ethereum ETF. Firstly, the existence of futures trading: the approval of a spot ETF must be based on a mature futures trading market, especially on officially recognized exchanges such as CME (Chicago Mercantile Exchange). Secondly, the deviation between the price of futures ETFs and spot prices must not be too large, demonstrating that the market will not be manipulated by spot ETFs. Additionally, a certain level of market maturity is required. As futures ETFs have been in operation for some time and have shown stability, this further supports the maturity and stability of the spot market.

CBOE Vice President and Global Head of ETF Listings Rob Marrocco pointed out that the only viable way to bring a Solana ETF to market is to first launch a Solana futures ETF and then pave the way for a spot ETF. He further stated that even once Solana futures ETFs are introduced, they will need a period of trading to establish a track record, a process that may be lengthy and ultimately may take a significant amount of time to complete.

While Bitcoin ETFs and Ethereum ETFs have already been approved, there is a significant difference between them and Solana: Bitcoin and Ethereum are both traded on the regulated Chicago Mercantile Exchange (CME) in futures, which the SEC can monitor. Solana, on the other hand, was listed among 19 unregistered securities when the SEC filed lawsuits against Binance and Coinbase Global Inc. in 2023, presenting a legal hurdle for SolanaETF approval.

Nevertheless, VanEck's former Director of Digital Asset Research, Matthew Sigel, previously stated that VanEck views Solana (SOL) as a commodity similar to Bitcoin (BTC) and Ethereum (ETH). This view is based on an evolving legal perspective, where courts and regulators have begun to recognize that some crypto assets may behave as securities in the primary market but more like commodities in the secondary market.

Sigel further mentioned that in the past year, Solana has made significant progress in decentralization; the top 100 holders currently control about 27% of the supply, significantly down from a year ago. The top 10 addresses now hold less than 9%. Solana has over 1500 validator nodes distributed across 41 countries, operating over 300 data centers, with a Nakamoto coefficient of 18, surpassing most networks under scrutiny. The upcoming Firedancer client will further enhance decentralization, ensuring no single entity can dominate the blockchain. He believes that these advancements highlight Solana's decentralized features, making it more akin to digital commodities like Bitcoin and Ethereum.

Sigel also referenced a key legal precedent—the 2018 U.S. Commodity Futures Trading Commission (CFTC) v. My Big Coin case. In this case, the defense of MBC argued that the token was not a commodity because it did not have associated futures contracts. However, a U.S. District Court disagreed, stating that under the Commodity Exchange Act (CEA), the definition of a commodity is broad and encompasses all goods, articles, and all services, rights, and interests related to these goods, which may have futures contracts in the future.

Sigel believes that this precedent could apply to Solana, indicating that even though Solana does not have futures contracts, it can still be considered a commodity. This classification is crucial for the approval of a Solana ETF because it provides Solana with a legal basis for being recognized as a commodity, allowing Solana to enter the approval process for commodity-based ETFs.

He further stated that ETF approval does not necessarily require an active futures market. Despite the relatively low trading volume of relevant futures markets, ETFs for industries such as shipping, energy, and uranium already exist. "We believe that even without CME futures contracts, it can be approved." He suggested that exchanges can use market surveillance-sharing agreements as an alternative.

If approved, the next question would be how large the demand for a spot Solana ETF would be. Grayscale Investments already operates the Grayscale Solana Trust, which currently manages assets of around $70 million. Bloomberg analyst James Seyffart believes that due to Solana's market cap being approximately 6% of Bitcoin's, the demand for this ETF will grow proportionally, with total demand estimated to reach around $3 billion eventually.

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