The BZX Exchange of the Chicago Board Options Exchange (Cboe) recently submitted applications for four Solana ETFs. With the U.S. presidential election day concluded and Trump set to take office, SEC Chairman Gary Gensler announced his impending resignation in January next year, creating new opportunities for Solana ETF approvals in the regulatory environment.
Analysts believe that the SEC will shift from an 'enforcement-based' to a 'disclosure-based' regulatory model, and if the Solana ETF is approved, it will stimulate huge demand in the crypto ETF market. As the fourth largest cryptocurrency by market capitalization, despite lacking support from a mature futures market and facing potential obstacles being classified as a security, its ETF application process is steadily advancing in expectation of a new regulatory environment.
Four institutions are competing to apply for a Solana ETF, which had ‘almost no chance’ before.
On November 22, Cboe BZX Exchange filings showed that the exchange proposed to list and trade four Solana ETFs on its platform. These ETFs are initiated by Bitwise, VanEck, 21Shares, and Canary Funds, classified as ‘Commodity-Based Trust Shares’ and 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 awaiting 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 the chances of the Solana ETF being approved rank ahead 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 on its website. At the time, Bloomberg ETF analyst Eric Balchunas commented that after CBOE removed the 19b-4 application for the Solana ETF from its website, the chances of it being approved were almost nonexistent. But now, the new regulatory environment may bring significant changes.
Regulatory expectations are changing: The SEC will return to a disclosure-based regulatory model.
After the U.S. presidential election day, the elected president Trump and historically the most supportive Congress for the crypto industry are about to take office. Meanwhile, SEC Chairman Gary Gensler, who has been criticized for his stance on the crypto industry, is set to resign on January 20, 2025, bringing more optimism to crypto supporters.
Nate Geraci, president of ETF Store, expressed his belief that 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 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 matter.
Matthew Sigel, head of digital asset research at VanEck, which was the first to apply for a Solana ETF, stated, “It is the SEC under Gary Gensler that has broken the long-standing rule-based traditional process and regulated through enforcement. A return to a disclosure-based regular system will bring more possibilities for innovation. I believe the chances of launching a Solana ETF before the end of next year are very high.”
However, in contrast to VanEck's optimistic stance, 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 aside from Bitcoin and Ethereum.
SEC Chairman Gary Gensler will leave office in January 2025.
On January 20 next year, Gensler will leave the position of SEC chairman, coinciding with Trump's inauguration day. Recently, this news has continuously boosted the crypto market, and Bitcoin's price has been setting new historical highs while attempting to break the $100,000 mark.
Data shows that the SEC set a historical record in the 2024 fiscal year, initiating 583 enforcement actions and obtaining $8.2 billion in financial compensation orders, the highest amount in the SEC's 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 turn the tide on crypto regulation.
The previously mentioned Alexander Blume stated: “Through traditional financial channels such as banks and exchanges, both institutional and retail investors can access cryptocurrencies through ETFs, which will open up previously unavailable pools of capital. It's like replacing a (small) pool hose with a (large) fire hose, meaning potential market momentum is enhanced, and speculative trading could have a larger impact.”
Solana is experiencing strong growth momentum, but what potential challenges might it face in its application?
Boosted by the meme market, Solana's growth momentum this year is significant. Solana's native token, SOL, broke the previous historical high of $259.96 set at the end of 2021 on November 23, reaching $263.83, with a market capitalization of $121.1 billion, making it the fourth largest cryptocurrency.
What application obstacles might the Solana ETF encounter? Looking back at previous Ethereum ETF applications, the SEC used an analysis framework called the 'Ark Analysis Test' in its approval statement for the Ethereum ETF, provided by Ark Funds and adopted by the SEC. The framework lists several key reasons that ultimately led to the approval of the Ethereum ETF: first, the existence of futures trading: the approval of spot ETFs must be based on a mature futures trading market, especially one recognized by official exchanges, such as CME (Chicago Mercantile Exchange). Second, 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 the spot ETF. Additionally, a certain level of market maturity is required. Futures ETFs have been operating for a while and performing steadily, 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 viable way to bring a Solana ETF to market is to first launch a Solana futures ETF, which will 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 a significant amount of time to complete.
While Bitcoin ETFs and Ethereum ETFs have already been approved, they have a significant difference from Solana: Bitcoin and Ethereum trade futures on regulated exchanges like the Chicago Mercantile Exchange (CME), which allows the SEC to monitor them. In contrast, Solana was listed as one of the 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which posed legal obstacles to the approval of the Solana ETF.
Nonetheless, previously, Matthew Sigel, head of digital asset research at VanEck, 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 regulatory agencies have begun to recognize that certain crypto assets may perform as securities in the primary market but more like commodities in the secondary market.
Sigel further mentioned that over 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% of the total supply. Solana has over 1,500 validation nodes distributed across 41 countries, operating over 300 data centers, with a node density coefficient of 18, surpassing most networks it monitors. The upcoming Firedancer client will further enhance decentralization, ensuring no single entity can dominate the blockchain. He believes these advancements make Solana's decentralized characteristics more pronounced, making it more like digital commodities such as Bitcoin and Ethereum.
Sigel also mentioned a key legal precedent—the 2018 CFTC v. My Big Coin case. In this case, the defense argued that the token did not constitute a commodity because there were no futures contracts associated with it. However, the U.S. district court disagreed, stating that under the 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, 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 for Solana, it can still be considered a commodity. This classification is crucial for the approval of the Solana ETF as it provides the legal basis 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 in related futures markets is not large, ETFs for shipping, energy, and uranium already exist. 'We believe that even without CME futures contracts, it can be approved.' He noted that exchanges can use market monitoring sharing agreements as an alternative.
If approved, the next question is how much demand there will be for a spot Solana ETF. Grayscale Investments currently operates the Grayscale Solana Trust, 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 eventually reach around $3 billion.
