Written by: Weilin, PANews
The Cboe BZX Exchange has recently submitted applications for four Solana ETFs. With the end of the U.S. election day, Trump set to take office, and SEC Chairman Gary Gensler announcing his impending 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 an 'enforcement-based' to an 'information disclosure-based' regulatory approach. If the Solana ETF is approved, it will stimulate huge demand in the crypto ETF market. As the fourth largest cryptocurrency by market cap, Solana, despite lacking the support of a mature futures market and facing potential obstacles to being classified as a security, is making steady progress in its ETF application process, expected in the new regulatory environment.
Four institutions are competing to apply for the Solana ETF, which was previously 'almost impossible.'
On November 22, Cboe BZX exchange documents 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 them, 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 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, there were reports 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 application for Solana ETFs from its website, the chances of the Solana ETF being approved were almost nonexistent. But currently, the new regulatory environment may bring about significant changes.
Expected regulatory changes: SEC will return to an information disclosure-based regulatory model
After the U.S. election day, the elected president Trump and the most crypto-friendly Congress in history are about to take office. Meanwhile, SEC Chairman Gary Gensler, who has been critical of 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 the Solana ETF is very likely to be approved by the end of next year. 'It appears that the SEC is communicating with the issuers regarding this product, which is clearly a positive signal.'
Alexander Blume, CEO of Two Prime Digital Assets, agrees with this viewpoint, stating that if the issuer does not have a strong assurance 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 the Solana ETF, stated, 'It was precisely the SEC under Gary Gensler that broke the long-standing rule-based traditional process and regulated through enforcement. Returning to the conventional system based on information disclosure will bring more possibilities for innovation. I believe the chances of launching a Solana ETF by the end of next year are very high.'
However, contrary to VanEck's optimistic stance, Robert Mitchnik, head of BlackRock's digital assets division, which has the largest Bitcoin ETF by scale, stated that the company is not very interested in other crypto products besides Bitcoin and Ethereum.
SEC Chairman Gary Gensler will step down in January 2025
On January 20 next year, Gensler will leave the position of SEC Chairman, coinciding with Trump's inauguration day. Recently, these news have continuously boosted the crypto market, with Bitcoin prices consistently setting new historical highs as they approach the $100,000 mark.
Data shows that the SEC set a historical record in the 2024 fiscal year by initiating 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 priorities for the agency. Now, Gensler's resignation is expected to reverse the cryptocurrency regulatory environment.
The aforementioned Alexander Blume stated: 'Through regulated traditional financial channels such as banks and exchanges, institutional and retail investors will be able to access cryptocurrencies via ETFs, which will open up previously nonexistent pools of capital. It's like replacing a (small) swimming pool hose with a (large) fire hose, indicating that potential market momentum is enhanced, and speculative trading may have a greater impact.'
Solana has strong growth momentum, but what potential application challenges does it face?
Driven by the meme market, Solana's growth momentum this year is significant. Solana's native token SOL broke through the previous all-time 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 the previous Ethereum ETF applications, the SEC adopted an analysis framework called the 'Ark Analysis Test' in the approval statements 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 passage of a spot ETF must be based on a mature futures trading market, particularly on officially recognized exchanges like 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. In addition, a certain level of market maturity is also required. Futures ETFs have been operating for a while and performing stably, 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 the 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 would need to trade for a while to establish a performance record, which could take a long time, ultimately requiring a significant amount of time to complete.
Although Bitcoin ETFs and Ethereum ETFs have already been approved, they have a significant difference from Solana: Bitcoin and Ethereum futures are traded on the regulated Chicago Mercantile Exchange (CME), allowing the SEC to monitor them. However, Solana was listed as one of the 19 unregistered securities when the SEC sued Binance and Coinbase Global Inc. in 2023, which also poses a legal hurdle for the approval of Solana ETFs.
Nevertheless, 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, 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 noted that over the past year, Solana has made significant progress in decentralization; currently, the top 100 holders control about 27% of the supply, a substantial 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 Nakamoto coefficient has reached 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 characteristics more pronounced, resembling digital commodities like Bitcoin and Ethereum.
Sigel also mentioned a key legal precedent—the 2018 CFTC v. My Big Coin case. In this case, the defense for MBC argued that the token did not qualify as a commodity because there were no futures contracts associated with it. However, the U.S. District Court did not agree with this view, stating that according to 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 those goods, and that these goods may potentially have futures contracts in the future.
Sigel believes that 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 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 the approval of the ETF does not necessarily require an active futures market. Although the trading volume of related futures markets is not large, ETFs for shipping, energy, and uranium already exist. 'We believe it can be approved even without CME futures contracts.' He indicated that exchanges could use market monitoring sharing agreements as a substitute.
If approved, the next question is how large the demand for a spot Solana ETF will be. Grayscale Investments has already been operating the Grayscale Solana Trust, currently managing assets of about $70 million. Bloomberg analyst James Seyffart believes that since Solana's market cap is about 6% of Bitcoin's, the demand for this ETF will grow proportionately, with an expected total demand of about $3 billion.
