According to a new analysis by James Overdahl and Craig Lewis, former chief economists at the SEC, Solana (SOL) demonstrates deep liquidity and strong price correlation with Bitcoin (BTC) and Ethereum (ETH). These characteristics support the case for regulatory approval of exchange-traded products (ETPs) in the U.S.
While U.S. regulators have yet to approve a Solana-based ETF, the approval of Bitcoin and Ethereum ETFs indicates a maturing crypto market and provides a framework for evaluating other digital assets.
Key Regulatory Factors for Evaluating Solana
Overdahl and Lewis’ analysis explores Solana’s market characteristics, which regulators consider when determining whether a crypto asset is suitable for regulated investment products. The main factors include:
✅ Order book liquidity
✅ Efficient spreads
✅ Trading costs
✅ Price correlation
Although SOL’s USD order book depth is smaller than that of BTC and ETH, its liquidity remains relatively strong given its smaller market capitalization.
Strong Liquidity and Low Trading Costs Enhance Stability
A significant portion of SOL’s circulating supply is easily accessible for trading compared to BTC and ETH. This is a positive sign for Solana’s liquidity, indicating growing market participation and the ability to handle large trades without significant price fluctuations.
Additionally, SOL’s efficient spreads and trading costs are now comparable to or, in some cases, lower than those observed in BTC and ETH markets.
High Price Correlation and Resistance to Manipulation
Another key indicator of market quality and resistance to manipulation is SOL’s price correlation across different exchanges. Research has shown a high degree of price correlation between Binance, Coinbase, and Kraken.
🔹 Correlation is higher over longer time intervals, indicating that any short-term price discrepancies caused by order flow or liquidity fluctuations are quickly corrected.
🔹 A strong arbitrage mechanism makes it difficult to manipulate SOL’s price on a single exchange.
🔹 Manipulators would need to influence Solana’s global price, making manipulation highly costly and challenging.
"Consistently high correlations suggest that arbitrage mechanisms are functioning efficiently. To successfully manipulate the price of SOL on any single exchange, one would likely need to impact its global price, which would entail high costs and act as a strong deterrent."
– Overdahl & Lewis Analysis
Solana as a Strong Candidate for Future ETFs
A combination of high liquidity, low trading costs, and a robust arbitrage mechanism demonstrates that Solana’s market is healthy and well-functioning, similar to BTC and ETH markets.
While regulatory approval is not guaranteed, the findings of this analysis make a compelling case for a Solana ETF. Its strong market performance and similarities to BTC and ETH position it as a leading candidate for the next wave of crypto investment products in the U.S.
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