With Trump winning the U.S. election, SEC Chair Gary Gensler announced that he would resign next January. The previously deemed nearly impossible Solana ETF seems to be gaining a turnaround.
Cboe's BZX Exchange recently submitted four new Solana ETF applications. With Trump set to take office next January and SEC Chair Gary Gensler announcing his departure, there may be new opportunities for the approval of the Solana ETF.
Analysts believe that the SEC will revert from a 'law enforcement-based' to a 'disclosure-based' regulatory model, and if the Solana ETF is approved, it will trigger massive demand for crypto ETFs.
Currently, Solana, as the fourth largest cryptocurrency by market capitalization, despite lacking support from a mature futures market and facing potential obstacles of being classified as a security, is steadily advancing its ETF application amid expectations of a new regulatory environment.
Four institutions are vying to apply for Solana ETF, which was once 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, categorized as 'Commodity-Based Trust Fund Shares,' submitted under Rule 14.11 (e)(4).
If the SEC formally accepts it, 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 is information indicating 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 a Solana ETF passing are ahead of other ETFs.
However, just three months ago, 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 that time, Bloomberg ETF analyst Eric Balchunas commented that after Cboe removed the Solana ETF's 19b-4 application from its website, the chances of Solana ETF being approved were almost non-existent.
But currently, the new regulatory environment may bring significant changes…
Regulatory changes are expected: The SEC will revert to a disclosure-based regulatory model.
Nate Geraci, president of ETF Store, stated that he believes the Solana ETF is very likely to be approved by the end of next year.
It appears 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, agreed with this view, stating that if the issuer does not have a strong assurance of success, they would not waste time and funds on this matter.
Matthew Sigel, the head of digital asset research at VanEck, who applied for the Solana ETF earliest, stated:
It is precisely under Gary Gensler's leadership that the SEC has broken the long-standing traditional process based on rules, regulating through enforcement. Returning to a conventional system based on information disclosure will open up more possibilities for innovation. I believe the likelihood of launching a Solana ETF by the end of next year is very high.
However, contrary to VanEck's optimistic outlook, Robert Mitchnik, head of BlackRock's digital assets division, the largest Bitcoin ETF, stated that the company is not very interested in other crypto products besides Bitcoin and Ethereum.
Solana's growth momentum is strong, but what potential application challenges does it face?
Boosted by meme market trends, Solana's growth momentum this year is significant. Solana's native token SOL broke the previous all-time 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 potential application obstacles might the Solana ETF encounter in the future? Looking back at previous Ethereum ETF applications, during the announcement of the Ethereum ETF approval, the SEC adopted an analytical framework called 'Ark Analysis Test,' provided by Ark Funds and adopted by the SEC. This framework enumerated 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 on officially recognized exchanges like CME (Chicago Mercantile Exchange).
Secondly, the divergence between the futures ETF price and the spot price cannot be too large. This proves that the market will not be manipulated by the spot ETF.
In addition, a certain level of market maturity is required. Futures ETFs have been executed for some time and have shown stable performance, which further supports the maturity and stability of the spot market.
Rob Marrocco, Vice President and Head of Global ETF Listings at CBOE, noted that the only feasible way to bring the Solana ETF to market is to first launch the Solana futures ETF and then pave the way for the spot ETF. He further stated that even if the Solana futures ETF is launched, they would need to trade for a period to establish a performance record, which could take a long time, ultimately requiring a significant amount of time to complete.
Solana has not yet traded futures on regulated platforms.
Although Bitcoin ETF and Ethereum ETF have been approved, they differ significantly from Solana: Bitcoin and Ethereum trade futures on the regulated Chicago Mercantile Exchange (CME), which the SEC can monitor. Solana was listed as one of the 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which also legally hindered the approval of Solana ETF.
Nevertheless, Matthew Sigel, the head of digital asset research at VanEck, previously pointed out that VanEck considers Solana (SOL) as a commodity, similar to Bitcoin (BTC) and Ethereum (ETH). This view is based on the evolving legal perspective, where 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 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, with a node density ratio of 18, surpassing most of its monitored networks. The upcoming Firedancer client will further enhance decentralization, ensuring no single entity can dominate the blockchain. He believes these advancements make Solana's decentralization characteristics 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 associated with these goods, and that these goods may have futures contracts in the future.
Sigel believes this precedent may apply to Solana, indicating that even if Solana does not have futures contracts, it can still be considered a commodity. This classification is crucial for the approval of the Solana ETF, as it provides legal grounds for Solana to be recognized as a commodity, allowing it to enter the approval process for commodity-based ETFs.
Analysts: There is a chance of approval even without futures.
Thus, he stated that ETF approval does not necessarily require an active futures market. Although trading volume in the relevant futures market is low, ETFs for shipping, energy, and uranium already exist. 'We believe that it can be approved even without CME futures contracts,' he said, adding that exchanges can 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 has been operating the Grayscale Solana Trust, currently managing assets of about $70 million. Bloomberg analyst James Seyffart believes that since Solana's market capitalization is approximately 6% of Bitcoin's, the demand for this ETF will grow proportionally, with total demand expected to reach around $3 billion.
