Article source: Weilin
Author: Weilin, PANews
The BZX Exchange of Cboe in Chicago recently submitted applications for four Solana ETFs. With the U.S. election day ending and Trump set to take office, SEC Chairman Gary Gensler announced his upcoming resignation in January next year, 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 return from a "law enforcement-based" to an "information disclosure-based" regulatory model. If the Solana ETF is approved, it will stimulate huge demand in the cryptocurrency ETF market. As the fourth largest cryptocurrency by market capitalization, Solana, despite lacking support from a mature futures market and facing potential hurdles being classified as a security, is steadily advancing its ETF application process in anticipation of the new regulatory environment.
Four institutions are competing to apply for Solana ETFs, which were previously deemed "almost impossible".
On November 22, Cboe BZX Exchange filed documents showing 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 and are classified as "commodity-based trust fund shares," submitted under rule 14.11(e)(4). If the SEC officially accepts the applications, 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 has also attempted ETF applications for ADA (Cardano) or AVAX (Avalanche).
Currently, some industry insiders believe that the chances of the Solana ETF being approved are higher than those of other ETFs.
However, just three months ago, public reports indicated that 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 19b-4 applications for Solana ETFs from its website, the chances of approval for Solana ETFs were nearly nonexistent. But currently, the new regulatory environment may bring significant changes.
Expected regulatory changes: 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 cryptocurrency industry will take office. Meanwhile, SEC Chairman Gary Gensler, criticized for his stance on the cryptocurrency industry, will resign on January 20, 2025, bringing more optimism to cryptocurrency supporters.
Nate Geraci, president of ETF Store, stated that he believes the Solana ETF is very likely to be approved before the end of next year. "It seems that the SEC is communicating with the issuer regarding this product, which is clearly a positive sign."
Alexander Blume, CEO of Two Prime Digital Assets, agreed with this view, stating that if the issuer is not very confident of success, they would not waste time and money on it.
Matthew Sigel, head of digital asset research at VanEck, which was the first to apply for a Solana ETF, stated, "It was the SEC under Gary Gensler's leadership that broke the long-standing rule-based traditional process and regulated through enforcement. Returning to a disclosure-based conventional system will bring more innovative possibilities. I believe the chances of launching a Solana ETF before the end of next year are very high."
However, contrary to VanEck's optimistic attitude, Robert Mitchnik, head of digital assets at BlackRock, which has the largest Bitcoin ETF scale, stated that the company is not very interested in other cryptocurrency products besides Bitcoin and Ethereum.
SEC Chairman Gary Gensler will resign in January 2025.
On January 20 next year, Gensler will step down from the SEC chair position, coinciding with Trump's inauguration day. Recently, these news have boosted the cryptocurrency market, with Bitcoin prices continuously setting new historical highs while 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 funds, and other high-risk financial misconduct are priorities for the agency. Now, Gensler's resignation is expected to reverse the cryptocurrency regulatory environment.
Alexander Blume mentioned earlier: "Through regulated traditional financial channels such as banks and exchanges, institutional and retail investors can access cryptocurrencies via ETFs, which will open up funding pools that did not previously exist. It's like replacing (small) swimming pool hoses with (large) fire hoses, meaning potential market momentum is enhanced, and speculative trading may have a greater impact."
Solana shows strong growth momentum, but what potential application challenges does it face?
Boosted by meme market trends, Solana's growth momentum this year has been significant. Solana's native token SOL broke through its previous historical high of $259.96 set at the end of 2021, reaching $263.83 on November 23, with a market capitalization of $121.1 billion, making it the fourth largest cryptocurrency.
What obstacles will the Solana ETF face in its application? Looking back at the previous Ethereum ETF applications, the SEC adopted an analytical framework called the "Ark Analysis Test" in the approval statement for the Ethereum ETF, which was 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, especially on officially recognized exchanges like CME (Chicago Mercantile Exchange). Secondly, the price deviation between futures ETFs and spot prices cannot be too large. This proves that the market will not be manipulated by the spot ETF. In addition, certain market maturity is also required. Futures ETFs have been running for a while and performing stably, which further supports the maturity and stability of the spot market.
Rob Marrocco, CBOE’s Vice President and Global Head of ETF Listings, pointed out that the only viable way to bring the Solana ETF to market is to first launch Solana futures ETFs and then pave the way for spot ETFs. He further stated that even if the Solana futures ETFs are launched, they will need a period of trading to establish a performance record, which could take a long time and ultimately require a significant amount of time to complete.
Although Bitcoin ETFs and Ethereum ETFs have been approved, they have a significant difference from Solana: Bitcoin and Ethereum futures are traded on the regulated Chicago Mercantile Exchange (CME), which the SEC can monitor. In contrast, Solana was listed as one of the 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which has brought legal obstacles to the approval of Solana ETFs.
Nevertheless, 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 viewpoint is based on an evolving legal perspective, as courts and regulators have begun to recognize that certain crypto assets may behave like 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; 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%. Solana has over 1,500 validator nodes distributed across 41 countries, operating more than 300 data centers, and its decentralization index reaches 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 case of the U.S. Commodity Futures Trading Commission (CFTC) vs. My Big Coin. 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 the definition of a commodity under the Commodity Exchange Act (CEA) is very broad, encompassing all goods, items, and all services, rights, and interests related to these goods, and that these goods 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 considered a commodity. This classification is crucial for the approval of Solana ETFs, as it provides legal grounds for Solana to be recognized as a commodity, allowing it to enter the approval process for commodity ETFs.
Thus, he stated that ETF approval does not necessarily require an active futures market. Although the trading volume of the relevant futures market is not large, ETFs for shipping, energy, and uranium already exist. "We believe that even without CME futures contracts, it can still be approved," he stated, adding that exchanges can substitute market monitoring sharing agreements.
If approved, the next question is how high the demand for a spot Solana ETF will be. Grayscale Investments already operates the Grayscale Solana Trust, currently managing approximately $70 million in assets. Bloomberg analyst James Seyffart believes that since Solana's market capitalization is about 6% of Bitcoin's, the demand for this ETF will grow proportionally, with total demand expected to reach around $3 billion.
