Author: Weilin, PANews
Cboe's BZX exchange has recently submitted four applications for Solana ETFs. With the U.S. election day concluded, Trump will take office, and SEC chairman Gary Gensler has announced his resignation next January, the regulatory environment for cryptocurrency ETFs is expected to undergo significant changes, creating new opportunities for the approval of Solana ETFs.
Analysts believe that the SEC will shift from a "regulation based on enforcement" back to a "disclosure-based" regulatory model. If the Solana ETF is approved, it will stimulate huge demand in the crypto ETF market. Solana, currently the fourth largest cryptocurrency by market cap, despite lacking support from a mature futures market and facing potential obstacles to being classified as a security, is steadily advancing in its ETF application process in anticipation of the new regulatory environment.
Four institutions are racing to apply for Solana ETF, which was previously deemed "almost impossible".
On November 22, Cboe BZX exchange filings showed that the exchange proposed to list and trade four types of Solana ETFs on its platform. These ETFs are initiated by Bitwise, VanEck, 21Shares, and Canary Funds, classified as "commodity-based trust fund shares" submitted under Rule 14.11(e)(4). If the SEC formally accepts, the final approval deadline is expected to be in early August 2025.
In addition to Bitcoin and Ethereum, the following cryptocurrencies are also waiting for ETF approval:
• XRP ETF: Canary Capital, Bitwise, and 21Shares have submitted applications.
• Solana ETF: Canary Capital, 21Shares, Bitwise, and VanEck are seeking approval.
• Litecoin ETF: Canary Capital has submitted an application.
• HBAR ETF: Canary Capital has submitted an application.
Nate Geraci, president of ETF Store, stated on November 21 that there are reports that at least one issuer is also trying for an ETF application for ADA (Cardano) or AVAX (Avalanche).
Currently, some industry insiders believe that the chances of the Solana ETF passing are ahead of other ETFs.
However, just three months ago, public reports indicated that the CBOE had removed the 19b-4 applications for two potential Solana ETFs from the "Pending Rule Changes" page of its website. At that time, Bloomberg ETF analyst Eric Balchunas commented that after Cboe removed the Solana ETF's 19b-4 applications from its website, the chances of Solana ETF being approved were almost nonexistent. But now, the new regulatory environment may bring significant changes.
Regulatory changes are expected: The SEC will return to a disclosure-based regulatory model.
After the U.S. election day, the elected president Trump and the historically most supportive Congress for the crypto industry are about to take office. Moreover, SEC Chairman Gary Gensler, who has faced criticism from the crypto industry, will resign on January 20, 2025, bringing more optimism to crypto supporters.
Nate Geraci, president of ETF Store, stated that he believes Solana ETF is very likely to be approved before the end of next year. "It seems the SEC is communicating with the issuers about this product, which is obviously a positive signal."
Alexander Blume, CEO of Two Prime Digital Assets, agrees with this view, stating that if the issuer does not have a high level of confidence in success, they would not waste time and money on it.
Matthew Sigel, head of digital asset research at VanEck, the earliest applicant for the Solana ETF, stated, "It is precisely the SEC under Gary Gensler that has broken the long-standing rule-based traditional process and regulated through enforcement. Returning to a disclosure-based conventional system will bring more possibilities for innovation. I believe the possibility of launching a Solana ETF before the end of next year is very high."
However, contrary to VanEck's optimistic outlook, Robert Mitchnik, head of BlackRock's digital asset division, which has the largest Bitcoin ETF, stated that the company is not very interested in other crypto products beyond Bitcoin and Ethereum.
SEC Chairman Gary Gensler will step down in January 2025.
On January 20 next year, Gensler will leave his position as SEC Chairman, which is also the day Trump takes office. Recently, this news has continuously boosted the crypto market, with Bitcoin's price reaching new historical highs in the process of approaching the $100,000 mark.
Data shows that the SEC set a historical record in the 2024 fiscal year, filing 583 enforcement actions and obtaining $8.2 billion in financial compensation orders, the highest amount in SEC history. Compared to 2023, this represents a 14% increase in enforcement actions. Cases involving cryptocurrencies, private equity funds, and other high-risk financial misconduct are a priority for the agency. Now, Gensler's resignation is expected to reverse the crypto regulatory environment.
The aforementioned Alexander Blume stated: "Through regulated traditional financial channels such as banks and exchanges, institutional and retail investors can access cryptocurrencies through ETFs, which will open up pools of capital that previously did not exist. It is like replacing a (small) swimming pool hose with a (large) fire hose, meaning potential market momentum is enhanced, and speculative trading may have a greater impact."
Solana is experiencing strong growth momentum, but what potential application challenges does it face?
Driven by meme market sentiment, Solana's growth momentum this year has been significant. Solana's native token SOL surpassed its previous historical high of $259.96 set at the end of 2021, reaching $263.83 with a market cap of $121.1 billion, making it the fourth largest cryptocurrency.
What application obstacles will Solana ETF face? Looking back at previous Ethereum ETF applications, the SEC adopted an analytical framework called the "Ark Analysis Test," provided by Ark Funds and adopted by the SEC. This framework listed several key reasons that ultimately led to the approval of the Ethereum ETF: First, the existence of futures trading: the approval of a spot ETF must be based on a mature futures trading market, particularly recognized exchanges such as CME. Secondly, the deviation between the prices of futures ETFs and spot prices cannot be too large. This proves that the market will not be manipulated by spot ETFs. Additionally, a certain level of market maturity is also required. Futures ETFs have been operating for some time and have shown stability, further supporting the maturity and stability of the spot market.
Rob Marrocco, Vice President and Global Head of ETF Listings at CBOE, pointed out that the only feasible way to bring 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 if the Solana futures ETF is launched, it will require a period of trading to establish a performance record, which could take a long time and ultimately require extensive time to complete.
While Bitcoin ETFs and Ethereum ETFs have been approved, they have a significant difference from Solana: Bitcoin and Ethereum both trade futures on the regulated Chicago Mercantile Exchange (CME), which the SEC can monitor. However, Solana was listed as one of the 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which also brings legal obstacles to the approval of Solana ETFs.
Despite this, Matthew Sigel, head of digital asset research at VanEck, previously pointed out that VanEck considers Solana (SOL) to be a commodity, similar to Bitcoin (BTC) and Ethereum (ETH). This view is based on an evolving legal perspective, as courts and regulators have begun to recognize that certain crypto assets may behave as securities in the primary market but more like commodities in the secondary market.
Sigel further mentioned that Solana has made significant progress in decentralization over the past year; currently, the top 100 holders control about 27% of the supply, a significant decrease from a year ago. The top 10 addresses now hold less than 9% of the total. Solana has over 1,500 validating nodes distributed across 41 countries, operating more than 300 data centers, with a degree of decentralization reaching 18, surpassing most networks it monitors. The upcoming Firedancer client will further enhance decentralization, ensuring that no single entity can dominate the blockchain. He believes these advancements make Solana's decentralized features more prominent, resembling digital commodities like Bitcoin and Ethereum.
Sigel also mentioned a key legal precedent – the 2018 U.S. Commodity Futures Trading Commission (CFTC) v. My Big Coin case. In this case, the defense argued that the token was not a commodity because there were no futures contracts associated with it. However, the U.S. District Court disagreed, stating that according to U.S. Commodity Exchange Act (CEA), the definition of a commodity is very broad, encompassing all goods, items, and all services, rights, and interests related to these goods, which may have futures contracts in the future.
Sigel believes this precedent may apply to Solana, indicating that even without futures contracts, Solana can still be regarded as a commodity. This classification is crucial for the approval of the Solana ETF, as it provides a legal basis for Solana to be recognized as a commodity, allowing it to enter the approval process for commodity ETFs.
Thus, he stated that the approval of an ETF does not necessarily require an active futures market. Although the trading volume in related futures markets is not large, ETFs already exist for shipping, energy, and uranium. "We believe that even without CME futures contracts, it can still be approved." He stated that exchanges could substitute through market surveillance sharing agreements.
If approved, the next question is how much demand there will be for the spot Solana ETF. Grayscale Investments currently operates Grayscale Solana Trust, managing about $70 million in assets. Bloomberg analyst James Seyffart believes that since Solana's market cap is about 6% of Bitcoin's, the demand for this ETF will increase proportionately, with total demand expected to reach about $3 billion.
